| ☒ | |||
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||
For the quarterly period ended September 30, 2017March 31, 2022
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the transition period from to
Commission File Number: 000-25131
(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.) | ||
3200 Olympus Blvd, Suite 100, Dallas, Texas 75019
(Address of principal executive offices) (Zip Code)
(972) 870-6400
(Registrant’s telephone number, including area code: (972) 870-6000code)
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“large accelerated filer," "accelerated” “accelerated filer," "smaller” “smaller reporting company,"” and "emerging“emerging growth company"company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ý | Accelerated filer | ☐ | ||||||||||
| Non-accelerated filer | Smaller reporting company | ||||||||||||
| Emerging growth company | |||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section13(a)Section 13(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.
As of April 27, 2022, 47,247,539 shares of the registrant’s Common Stock were outstanding.
TABLE OF CONTENTS
| Item 1. | ||||||||
Condensed Consolidated Statements of Cash Flows (Unaudited) | ||||||||
| Item 2. | ||||||||
| Item 3. | ||||||||
| Item 4. | ||||||||
| Item 1. | ||||||||
| Item 1A. | ||||||||
| Item 2. | ||||||||
| Item 3. | ||||||||
| Item 4. | ||||||||
| Item 5. | ||||||||
| Item 6. | ||||||||
This report includes some of the trademarks, trade names, and service marks of Blucora, Inc. (referred to throughout this report as “Blucora,” the “Company,”“we,”“us,” or “our”), including Blucora, Avantax Wealth Management, Avantax Planning Partners, Avantax Retirement Plan Services, HD Vest, 1st Global, HKFS, and TaxAct. Each one of these trademarks, trade names, or service marks is either (i) our registered trademark, (ii) a trademark for which we have a pending application, (iii) a trade name or service mark for which we claim common law rights, or (iv) a registered trademark or application for registration that we have been authorized by a third party to use.
Solely for convenience, the trademarks, service marks, and trade names included in this report are without the ®, ™ or other applicable symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensors to these trademarks, service marks, and trade names. This report may also include additional trademarks, service marks, and trade names of others, which are the property of their respective owners. All trademarks, service marks, and trade names included in this report are, to our knowledge, the property of their respective owners.
References to our or our subsidiaries’ website addresses or the website addresses of third parties in this report do not constitute incorporation by reference of the information contained on such websites and should not be considered part of this report.
Blucora, Inc. | Q1 2022 Form 10-Q 2
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (“Form 10-Q”) contains forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that involve risks and uncertainties. Many of the forward-looking statements are located in Part I, Item 2 of this Form 10-Q under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact. Forward-looking statements can also be identified by words such as “anticipates,” “believes,” “plans,” “expects,” “future,” “intends,” “may,” “will,” “would,” “could,” “should,” “estimates,” “predicts,” “potential,” “continues,” “target,” “outlook,” and similar terms and expressions, but the absence of these words does not mean that the statement is not forward-looking. Actual results may differ significantly from management’s expectations due to various risks and uncertainties including, but not limited to:
•our ability to effectively compete within our industries;
•our ability to attract and retain financial professionals, employees, clients, and customers, as well as our ability to provide strong customer/client service;
•the impact of the COVID-19 pandemic on our results of operations and our business, including the impact of the resulting economic and market disruption, the extension of tax filing deadlines, and other related government actions;
•our future capital requirements and the availability of financing, if necessary;
•our ability to meet our current and future debt service obligations, including our ability to maintain compliance with our debt covenants;
•any downgrade of the Company’s credit ratings;
•our ability to generate strong performance for our clients and the impact of the financial markets on our clients’ portfolios;
•the impact of new or changing legislation and regulations (or interpretations thereof) on our business, including our ability to successfully address and comply with such legislation and regulations (or interpretations thereof) and increased costs, reductions of revenue, and potential fines, penalties, or disgorgement to which we may be subject as a result thereof;
•risks, burdens, and costs, including fines, penalties, or disgorgement, associated with our business being subjected to regulatory inquiries, investigations, or initiatives, including those of the Financial Industry Regulatory Authority, Inc. and the Securities and Exchange Commission (the “SEC”);
•risks associated with legal proceedings, including litigation and regulatory proceedings;
•our ability to close, finance, and realize all of the anticipated benefits of acquisitions, as well as our ability to integrate the operations of recently acquired businesses, and the potential impact of such acquisitions on our existing indebtedness and leverage;
•our ability to retain employees and acquired client assets following acquisitions;
•any compromise of confidentiality, availability or integrity of information, including cyberattacks;
•our ability to manage leadership and employee transitions, including costs and time burdens on management and our board of directors related thereto;
•political and economic conditions and events that directly or indirectly impact the wealth management and tax preparation software industries;
•our ability to respond to rapid technological changes, including our ability to successfully release new products and services or improve upon existing products and services;
•our expectations concerning the revenues we generate from fees associated with the financial products that we distribute;
•risks related to goodwill and acquired intangible asset impairment;
•our ability to develop, establish, and maintain strong brands;
•risks associated with the use and implementation of information technology and the effect of security breaches, computer viruses, and computer hacking attacks;
Blucora, Inc. | Q1 2022 Form 10-Q 3
•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, industry associations, and licensing partners, and our expectations regarding and reliance on the products, tools, platforms, systems, and services provided by these third parties;
•the seasonality of our business;
•our assessments and estimates that determine our effective tax rate;
•our ability to protect our intellectual property and the impact of any claim that we infringed on the intellectual property rights of others; and
•the effects on our business of actions of activist stockholders.
Forward-looking statements are not guarantees of future performance and are subject to known and unknown risks, uncertainties, and other factors that may cause our results, levels of activity, performance, achievements, and prospects to be materially different from those expressed or implied by such forward-looking statements. These risks, uncertainties, and other factors include, among others, the risk factors set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, as well as in our other filings with the SEC. All forward-looking statements speak only as of the date of this Form 10-Q. We do not undertake any obligation and do not intend to update or revise any forward-looking statement to reflect new information, events, or circumstances after the date of this Form 10-Q or to reflect the occurrence of unanticipated events, except as required by law.
Blucora, Inc. | Q1 2022 Form 10-Q 4
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
BLUCORA, INC.
(In thousands, except per share data)amounts)
| March 31, 2022 | December 31, 2021 | ||||||||||
| (Unaudited) | |||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 144,222 | $ | 134,824 | |||||||
| Accounts receivable, net | 26,618 | 21,906 | |||||||||
| Commissions and advisory fees receivable | 22,890 | 25,073 | |||||||||
| Prepaid expenses and other current assets | 21,695 | 18,476 | |||||||||
| Total current assets | 215,425 | 200,279 | |||||||||
| Long-term assets: | |||||||||||
| Property, equipment, and software, net | 73,687 | 73,638 | |||||||||
| Right-of-use assets, net | 20,113 | 20,466 | |||||||||
| Goodwill, net | 454,821 | 454,821 | |||||||||
| Acquired intangible assets, net | 296,894 | 302,289 | |||||||||
| Other long-term assets | 23,019 | 20,450 | |||||||||
| Total long-term assets | 868,534 | 871,664 | |||||||||
| Total assets | $ | 1,083,959 | $ | 1,071,943 | |||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | 23,879 | $ | 8,216 | |||||||
| Commissions and advisory fees payable | 15,387 | 17,940 | |||||||||
| Accrued expenses and other current liabilities | 61,255 | 65,678 | |||||||||
| Current deferred revenue | 8,459 | 13,180 | |||||||||
| Current lease liabilities | 4,945 | 4,896 | |||||||||
| Current portion of long-term debt | 1,812 | 1,812 | |||||||||
| Total current liabilities | 115,737 | 111,722 | |||||||||
| Long-term liabilities: | |||||||||||
| Long-term debt, net | 553,297 | 553,134 | |||||||||
| Long-term lease liabilities | 32,504 | 33,267 | |||||||||
| Deferred tax liabilities, net | 19,480 | 20,124 | |||||||||
| Long-term deferred revenue | 5,090 | 5,322 | |||||||||
| Other long-term liabilities | 8,978 | 6,752 | |||||||||
| Total long-term liabilities | 619,349 | 618,599 | |||||||||
| Total liabilities | 735,086 | 730,321 | |||||||||
| Commitments and contingencies (Note 9) | 0 | 0 | |||||||||
| Stockholders’ equity: | |||||||||||
| Common stock, par value $0.0001 per share—900,000 shares authorized; 50,384 shares issued and 47,433 shares outstanding at March 31, 2022; 50,137 shares issued and 48,831 shares outstanding at December 31, 2021 | 5 | 5 | |||||||||
| Additional paid-in capital | 1,622,973 | 1,619,805 | |||||||||
| Accumulated deficit | (1,215,169) | (1,249,789) | |||||||||
| Treasury stock, at cost— 2,951 shares at March 31, 2022 and 1,306 shares at December 31, 2021 | (58,936) | (28,399) | |||||||||
| Total stockholders’ equity | 348,873 | 341,622 | |||||||||
| Total liabilities and stockholders’ equity | $ | 1,083,959 | $ | 1,071,943 | |||||||
| 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 | |||
Blucora, Inc. | Q1 2022 Form 10-Q 5
BLUCORA, INC.
| 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 | ) | ||||
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||
| Wealth Management | $ | 166,403 | $ | 154,491 | |||||||||||||||||||
| Tax Software | 141,150 | 123,892 | |||||||||||||||||||||
| Total revenue | 307,553 | 278,383 | |||||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Cost of revenue: | |||||||||||||||||||||||
| Wealth Management | 119,874 | 108,623 | |||||||||||||||||||||
| Tax Software | 9,426 | 5,578 | |||||||||||||||||||||
| Total cost of revenue | 129,300 | 114,201 | |||||||||||||||||||||
| Engineering and technology | 8,504 | 7,128 | |||||||||||||||||||||
| Sales and marketing | 84,403 | 77,562 | |||||||||||||||||||||
| General and administrative | 29,075 | 24,685 | |||||||||||||||||||||
| Acquisition and integration | 1,666 | 8,103 | |||||||||||||||||||||
| Depreciation | 2,931 | 2,300 | |||||||||||||||||||||
| Amortization of acquired intangible assets | 6,631 | 7,175 | |||||||||||||||||||||
| Total operating expenses | 262,510 | 241,154 | |||||||||||||||||||||
| Operating income | 45,043 | 37,229 | |||||||||||||||||||||
| Interest expense and other, net | (7,841) | (7,883) | |||||||||||||||||||||
| Income before income taxes | 37,202 | 29,346 | |||||||||||||||||||||
| Income tax expense | (2,582) | (1,700) | |||||||||||||||||||||
| Net income | $ | 34,620 | $ | 27,646 | |||||||||||||||||||
| Net income per share: | |||||||||||||||||||||||
| Basic | $ | 0.71 | $ | 0.57 | |||||||||||||||||||
| Diluted | $ | 0.70 | $ | 0.56 | |||||||||||||||||||
| Weighted average shares outstanding: | |||||||||||||||||||||||
| Basic | 48,513 | 48,261 | |||||||||||||||||||||
| Diluted | 49,747 | 49,097 | |||||||||||||||||||||
See accompanying notes to Unaudited Condensed Consolidated Financial Statements.notes.
Blucora, Inc. | Q1 2022 Form 10-Q 6
BLUCORA, INC.
(Unaudited) (In thousands)
| Additional paid-in capital | Accumulated deficit | ||||||||||||||||||||||||||||||||||||||||||||||
| Common stock | Treasury stock | ||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Total | |||||||||||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2021 | 50,137 | $ | 5 | $ | 1,619,805 | $ | (1,249,789) | 1,306 | $ | (28,399) | $ | 341,622 | |||||||||||||||||||||||||||||||||||
| Common stock issued pursuant to stock incentive plans and employee stock purchase plans | 247 | — | 96 | — | — | — | 96 | ||||||||||||||||||||||||||||||||||||||||
| Stock repurchases | — | — | — | — | 1,645 | (30,537) | (30,537) | ||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | 4,641 | — | — | — | 4,641 | ||||||||||||||||||||||||||||||||||||||||
| Tax payments from shares withheld for equity awards | — | — | (1,569) | — | — | — | (1,569) | ||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | 34,620 | — | — | 34,620 | ||||||||||||||||||||||||||||||||||||||||
| Balance as of March 31, 2022 | 50,384 | $ | 5 | $ | 1,622,973 | $ | (1,215,169) | 2,951 | $ | (58,936) | $ | 348,873 | |||||||||||||||||||||||||||||||||||
| Additional paid-in capital | Accumulated deficit | ||||||||||||||||||||||||||||||||||||||||||||||
| Common stock | Treasury stock | ||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Total | |||||||||||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2020 | 49,483 | $ | 5 | $ | 1,598,230 | $ | (1,257,546) | 1,306 | $ | (28,399) | $ | 312,290 | |||||||||||||||||||||||||||||||||||
| Common stock issued pursuant to stock incentive plans and employee stock purchase plans | 132 | — | 63 | — | — | — | 63 | ||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | 5,520 | — | — | — | 5,520 | ||||||||||||||||||||||||||||||||||||||||
| Tax payments from shares withheld for equity awards | — | — | (865) | — | — | — | (865) | ||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | 27,646 | — | — | 27,646 | ||||||||||||||||||||||||||||||||||||||||
| Balance as of March 31, 2021 | 49,615 | $ | 5 | $ | 1,602,948 | $ | (1,229,900) | 1,306 | $ | (28,399) | $ | 344,654 | |||||||||||||||||||||||||||||||||||
See accompanying notes.
Blucora, Inc. | Q1 2022 Form 10-Q 7
BLUCORA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| 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 | |||
| Three Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Operating activities: | |||||||||||
| Net income | $ | 34,620 | $ | 27,646 | |||||||
| Adjustments to reconcile net income to net cash from operating activities: | |||||||||||
| Depreciation and amortization of acquired intangible assets | 11,305 | 10,418 | |||||||||
| Stock-based compensation | 6,225 | 5,610 | |||||||||
| Change in the fair value of acquisition-related contingent consideration | 1,700 | 6,300 | |||||||||
| Reduction of right-of-use lease assets | 353 | 569 | |||||||||
| Deferred income taxes | (644) | (269) | |||||||||
| Amortization of debt discount and issuance costs | 681 | 640 | |||||||||
| Accretion of lease liabilities | 514 | 514 | |||||||||
| Other non-cash items | 1,101 | (78) | |||||||||
| Changes in operating assets and liabilities, net of acquisitions and disposals: | |||||||||||
| Accounts receivable, net | (4,647) | (11,541) | |||||||||
| Commissions and advisory fees receivable | 2,183 | 111 | |||||||||
| Prepaid expenses and other current assets | (2,741) | (1,163) | |||||||||
| Other long-term assets | (3,363) | (828) | |||||||||
| Accounts payable | 15,663 | 12,729 | |||||||||
| Commissions and advisory fees payable | (2,553) | (259) | |||||||||
| Lease liabilities | (1,229) | (172) | |||||||||
| Deferred revenue | (4,953) | (7,250) | |||||||||
| Accrued expenses and other current and long-term liabilities | (6,872) | 10,745 | |||||||||
| Net cash provided by operating activities | 47,343 | 53,722 | |||||||||
| Investing activities: | |||||||||||
| Purchases of property, equipment, and software | (4,731) | (8,598) | |||||||||
| Asset acquisitions | (751) | (587) | |||||||||
| Net cash used by investing activities | (5,482) | (9,185) | |||||||||
| Financing activities: | |||||||||||
| Payments on credit facilities | (453) | (453) | |||||||||
| Stock repurchases | (30,537) | — | |||||||||
| Proceeds from stock option exercises | 96 | 63 | |||||||||
| Tax payments from shares withheld for equity awards | (1,569) | (865) | |||||||||
| Net cash used by financing activities | (32,463) | (1,255) | |||||||||
| Net increase in cash, cash equivalents, and restricted cash | 9,398 | 43,282 | |||||||||
| Cash, cash equivalents, and restricted cash, beginning of period | 134,824 | 150,762 | |||||||||
| Cash, cash equivalents, and restricted cash, end of period | $ | 144,222 | $ | 194,044 | |||||||
| Supplemental cash flow information: | |||||||||||
| Cash paid for income taxes | $ | 850 | $ | — | |||||||
| Cash paid for interest | $ | 7,107 | $ | 7,123 | |||||||
See accompanying notes to Unaudited Condensed Consolidated Financial Statements.notes.
Blucora, Inc. | Q1 2022 Form 10-Q 8
BLUCORA, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1: The Company and Basis of Presentation
Description of the business:Business
Blucora, Inc. (the "Company"“Company,”“Blucora,” “we,” “our,” or "Blucora"“us”) operates two2 primary businesses: athe Wealth Management business and an onlinethe digital Tax PreparationSoftware business. The
Wealth Management
Our Wealth Management business consists of the operations of HDV Holdings, Inc. and its subsidiaries ("HD Vest"). HDV Holdings, Inc. is the parent company of theAvantax Wealth Management and Avantax Planning Partners (collectively, the “Wealth Management business” or the “Wealth Management segment”).
Avantax Wealth Management provides tax-focused wealth management solutions for financial professionals, tax professionals, certified public accounting (“CPA”) firms, and their clients. Avantax Wealth Management offers its services through its registered broker-dealer, registered investment advisor (“RIA”), and insurance agency subsidiaries and is a leading U.S. tax-focused independent broker-dealer. Avantax Wealth Management works with a nationwide network of financial professionals that operate as independent contractors. Avantax Wealth Management provides these financial professionals with an integrated platform of technical, practice, compliance, operations, sales, and product support tools that enable them to offer tax-advantaged planning, investing, and wealth management services to their clients.
Avantax Planning Partners is an in-house/employee-based RIA, insurance agency, and wealth management business that partners with CPA firms in order to provide their consumer and owns all outstanding shares of HD Vest, Inc., which servessmall business clients with holistic financial planning and advisory services, as a holding company for the various financial services subsidiaries. Those subsidiaries include HD Vest Investment Securities, Inc. (an introducing broker-dealer), HD Vest Advisorywell as retirement plan solutions through Avantax Retirement Plan Services. Avantax Planning Partners formerly operated as Honkamp Krueger Financial Services, Inc. (a registered investment advisor),(“HKFS”). We acquired HKFS in July 2020 (the “HKFS Acquisition”) and HD Vest Insurance Agency, LLC (an insurance broker) (collectively referredsubsequently rebranded it in order to as the "Wealth Management business" or the "Wealth Management segment"). The create tighter brand alignment through one common and recognizable brand. Any reference to Avantax Planning Partners in this Form 10-Q is inclusive of HKFS.
Tax PreparationSoftware
Our Tax Software business consists of the operations of TaxAct, Inc. ("TaxAct"“TaxAct,” the “Tax Software business,” or the “Tax Software segment”) and provides digital tax preparation solutionsservices and ancillary services for consumers, small business owners, and tax professionals through its website www.TaxAct.com (collectively referred to asand its mobile applications.
Our Tax Software segment is highly seasonal with a significant portion of its annual revenue typically earned in the "Tax Preparation business" or the "Tax Preparation segment").
As parta result of the Strategic Transformationcontinued impact of the COVID-19 pandemic, the Internal Revenue Service (“IRS”) delayed the start of the tax year 2020 tax season and "One Company" operating model,extended the Company announced on October 27, 2016 plansfiling and payment deadline for tax year 2020 federal tax returns from April 15, 2021 to relocate its corporate headquarters byMay 17, 2021. In addition, the IRS further extended the federal filing and payment deadline for Texas, Louisiana, and Oklahoma to June 2017 from Bellevue, Washington to Irving, Texas. The actions to relocate corporate headquarters were intended to drive efficiencies15, 2021. Beyond federal filings, the majority of states also extended their filing and improve operational effectiveness (see "Note 5: Restructuring"). The restructuring is now substantially complete and it ispayment deadlines for tax year 2020 state tax returns. This extension resulted in the shifting of a significant portion of Tax Software segment revenue that would typically have been expected to be completed by early 2018.earned in the first quarter to the second quarter of 2021.
We have 2 reportable segments: (1) the Wealth Management segment and (2) the Tax PreparationSoftware segment.
Note 2: Summary of Significant Accounting Policies
Interim financial information:Financial Information
The accompanying unaudited condensed consolidated financial statements have been prepared by the Companyus under the rules and regulations of the Securities and Exchange Commission (the "SEC")SEC for interim financial reporting. These condensed consolidated financial
Blucora, Inc. | Q1 2022 Form 10-Q 9
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 condensed 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 accordanceconformity with United States generally accepted accounting principles generally accepted in the United States ("GAAP"“GAAP”) have been omitted in accordance with the rules and regulations of the SEC. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes in Part II, Item 8 of the Company’sour Annual Report on Form 10-K for the year ended December 31, 2016.2021. Interim results are not necessarily indicative of results for a full year.
Note 3: Segment Information and restricted cash: The following table presents cash, cash equivalents,Revenue
We have 2 reportable segments: (1) the Wealth Management segment and restricted cash(2) the Tax Software segment. Our Chief Executive Officer is the chief operating decision maker and reviews financial information presented on a disaggregated basis. This information is used for purposes of allocating resources and evaluating financial performance.
We do not allocate certain general and administrative costs (including personnel and overhead costs), stock-based compensation, acquisition and integration costs, depreciation, amortization of acquired intangible assets, or contested proxy and other legal and consulting costs to the reportable segments. Such amounts are reflected under the heading “Corporate-level activity.” In addition, we do not allocate interest expense and other, net, or income taxes to the reportable segments. We do not report assets or capital expenditures by segment to the chief operating decision maker.
Information on reportable segments currently presented to our chief operating decision maker and a reconciliation to consolidated net income are presented below (in thousands):
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||
| Wealth Management | $ | 166,403 | $ | 154,491 | |||||||||||||||||||
| Tax Software | 141,150 | 123,892 | |||||||||||||||||||||
| Total revenue | 307,553 | 278,383 | |||||||||||||||||||||
| Operating income (loss): | |||||||||||||||||||||||
| Wealth Management | 16,421 | 19,396 | |||||||||||||||||||||
| Tax Software | 58,030 | 50,888 | |||||||||||||||||||||
| Corporate-level activity | (29,408) | (33,055) | |||||||||||||||||||||
| Total operating income | 45,043 | 37,229 | |||||||||||||||||||||
| Interest expense and other, net | (7,841) | (7,883) | |||||||||||||||||||||
| Income before income taxes | 37,202 | 29,346 | |||||||||||||||||||||
| Income tax expense | (2,582) | (1,700) | |||||||||||||||||||||
| Net income | $ | 34,620 | $ | 27,646 | |||||||||||||||||||
Blucora, Inc. | Q1 2022 Form 10-Q 10
Wealth Management Revenue Recognition
Wealth management revenue primarily consists of advisory revenue, commission revenue, asset-based revenue, and transaction and fee revenue.
Revenues by major category within the Wealth Management segment and the timing of Wealth Management revenue recognition was as reportedfollows (in thousands):
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| Recognized upon transaction: | |||||||||||||||||||||||
| Commission | $ | 20,624 | $ | 22,367 | |||||||||||||||||||
| Transaction and fee | 1,244 | 1,374 | |||||||||||||||||||||
| Total Wealth Management revenue recognized upon transaction | $ | 21,868 | $ | 23,741 | |||||||||||||||||||
| Recognized over time: | |||||||||||||||||||||||
| Advisory | $ | 107,169 | $ | 91,119 | |||||||||||||||||||
| Commission | 27,031 | 30,167 | |||||||||||||||||||||
| Asset-based | 5,663 | 5,329 | |||||||||||||||||||||
| Transaction and fee | 4,672 | 4,135 | |||||||||||||||||||||
| Total Wealth Management revenue recognized over time | $ | 144,535 | $ | 130,750 | |||||||||||||||||||
| Total Wealth Management revenue: | |||||||||||||||||||||||
| Advisory | $ | 107,169 | $ | 91,119 | |||||||||||||||||||
| Commission | 47,655 | 52,534 | |||||||||||||||||||||
| Asset-based | 5,663 | 5,329 | |||||||||||||||||||||
| Transaction and fee | 5,916 | 5,509 | |||||||||||||||||||||
| Total Wealth Management revenue | $ | 166,403 | $ | 154,491 | |||||||||||||||||||
Tax Software Revenue Recognition
We generate Tax Software revenue from the sale of digital tax preparation services, packaged tax preparation software, ancillary services, and multiple element arrangements that may include a combination of these items.
Revenues by major category within the Tax Software segment and the timing of Tax Software revenue recognition was as follows (in thousands):
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| Recognized upon transaction: | |||||||||||||||||||||||
| Consumer | $ | 125,261 | $ | 110,567 | |||||||||||||||||||
| Professional | 13,784 | 12,127 | |||||||||||||||||||||
| Total Tax Software revenue recognized upon transaction | $ | 139,045 | $ | 122,694 | |||||||||||||||||||
| Recognized over time: | |||||||||||||||||||||||
| Professional | $ | 2,105 | $ | 1,198 | |||||||||||||||||||
| Total Tax Software revenue recognized over time | $ | 2,105 | $ | 1,198 | |||||||||||||||||||
| Total Tax Software revenue: | |||||||||||||||||||||||
| Consumer | $ | 125,261 | $ | 110,567 | |||||||||||||||||||
| Professional | 15,889 | 13,325 | |||||||||||||||||||||
| Total Tax Software revenue | $ | 141,150 | $ | 123,892 | |||||||||||||||||||
Note 4: Asset Acquisitions
During the three months ended March 31, 2022, we completed acquisitions in our Wealth Management business that met the criteria to be accounted for as asset acquisitions. Total initial purchase consideration, including acquisition costs and fixed deferred payments, was $1.2 million. This purchase consideration was
Blucora, Inc. | Q1 2022 Form 10-Q 11
allocated to the acquired assets, primarily customer relationship intangibles. Customer relationship intangibles are amortized on thea straight-line basis over an amortization period of 15 years.
We are subject to variable contingent consideration payments related to our asset acquisitions that are not recognized as a liability on our condensed consolidated balance sheets until all contingencies related to the achievement of future financial targets are resolved and the consideration is paid. As of March 31, 2022, the maximum future fixed and contingent payments associated with all prior asset acquisitions were $17.0 million, with specified payment dates from 2022 through 2026.
Note 5: Debt
Our debt consisted of the following as of the periods indicated in the table below (in thousands):
| March 31, 2022 | December 31, 2021 | ||||||||||||||||||||||
| Senior Secured Credit Facility | |||||||||||||||||||||||
| Principal outstanding | $ | 560,891 | $ | 561,344 | |||||||||||||||||||
| Unamortized debt issuance costs | (3,047) | (3,371) | |||||||||||||||||||||
| Unamortized debt discount | (2,735) | (3,027) | |||||||||||||||||||||
| Net carrying value | $ | 555,109 | $ | 554,946 | |||||||||||||||||||
In May 2017, we entered into a credit agreement (as the same has been amended, the “Credit Agreement”) with a syndicate of lenders that equalprovides for a term loan facility (the “Term Loan”) and a revolving line of credit (including a letter of credit sub-facility) (the “Revolver”) for working capital, capital expenditures, and general business purposes (as amended, the “Senior Secured Credit Facility”). The Term Loan has a maturity date of May 22, 2024 (the “Term Loan Maturity Date”). On April 26, 2021, to ensure adequate liquidity and flexibility to support the Company’s growth, we entered into Amendment No. 5 to the Credit Agreement (the “Credit Agreement Amendment”). Pursuant to the Credit Agreement Amendment, the Credit Agreement was amended to, among other things, refinance the existing $65.0 million Revolver and add $25.0 million of additional revolving credit commitments, for an aggregate principal amount of $90.0 million in revolving credit commitments (the “New Revolver”). The New Revolver has a maturity date of February 21, 2024 (the “New Revolver Maturity Date”).
The Company capitalized approximately $0.5 million of debt issuance costs paid in connection with the Credit Agreement Amendment, which are included in other long-term assets on the Company’s condensed consolidated balance sheets as part of the total deferred financing costs associated with the New Revolver.
As of March 31, 2022, the Senior Secured Credit Facility provided for up to $765.0 million of borrowings and consisted of a committed $90.0 million under the New Revolver and a $675.0 million Term Loan. As of March 31, 2022, we had $560.9 million in principal amount outstanding under the Term Loan and no amounts outstanding under the New Revolver. Based on aggregate loan commitments as of March 31, 2022, approximately $90.0 million was available for future borrowings under the Senior Secured Credit Facility, subject to customary terms and conditions.
The Company is required to make mandatory annual prepayments on the Term Loan in certain circumstances, including in the event that the Company generates Excess Cash Flow (as defined in the Credit Agreement) in a given fiscal year. The Credit Agreement permits the Company to voluntarily prepay the Term Loan without premium or penalty. In addition, the Company is required to make principal amortization payments on the Term Loan quarterly on the last business day of each March, June, September, and December, in an amount equal to approximately $0.5 million (subject to reduction for prepayments), with the remaining principal amount of the Term Loan due on the Term Loan Maturity Date.
The interest rate on the Term Loan is variable at the London Interbank Offered Rate (subject to a floor of 1.0%), plus the applicable interest rate margin of 4.0% for Eurodollar Rate Loans (as defined in the Credit Agreement) and 3.0% for ABR Loans (as defined in the Credit Agreement). As of March 31, 2022, the applicable interest rate on the Term Loan was 5.0%. Depending on the Consolidated First Lien Net Leverage Ratio (as defined in the Credit Agreement), the applicable interest rate margin on the New Revolver ranges from 2.0% to 2.5% for Eurodollar Rate Loans and 1.0% to 1.5% for ABR Loans. The Company is required to pay a commitment fee on the undrawn commitment under the New Revolver in a percentage that is dependent on the Consolidated First Lien Net
Blucora, Inc. | Q1 2022 Form 10-Q 12
Leverage Ratio that ranges from 0.35% to 0.4%. Interest is payable at the end of each interest period, typically quarterly.
Obligations under the Senior Secured Credit Facility are guaranteed by certain of the Company’s subsidiaries and secured by substantially all the assets of the Company and certain of its subsidiaries (including certain subsidiaries acquired in the acquisition of Avantax Planning Partners and certain other material subsidiaries). The Senior Secured Credit Facility includes financial and operating covenants (including a Consolidated Total Net Leverage Ratio), which are set forth in detail in the Credit Agreement.
Pursuant to the Credit Agreement Amendment, if the Company’s usage of the New Revolver exceeds 30% of the aggregate commitments under the New Revolver on the last day of any calendar quarter, the Company shall not permit the Consolidated Total Net Leverage Ratio (as defined in the Credit Agreement) to exceed (i) 4.75 to 1.00 for the period beginning on April 1, 2021 and ending on December 31, 2021, (ii) 4.25 to 1.00 for the period beginning on January 1, 2022 and ending on September 30, 2022, (iii) 4.00 to 1.00 for the period beginning on October 1, 2022 and ending on December 31, 2022, and (iv) 3.50 to 1.00 for the period beginning on January 1, 2023 and ending on February 21, 2024.
Except as described above, the New Revolver has substantially the same terms as the previous Revolver, including certain covenants and events of default. The Company was in compliance with the debt covenants of the Senior Secured Credit Facility as of March 31, 2022.
Note 6: Leases
Our leases are primarily related to office space and are classified as operating leases. Operating lease cost, net of sublease income, is recognized in “General and administrative” expense for those net costs related to leases used in our operations and within “Acquisition and integration” expense for those net costs related to an unoccupied lease assumed in a previous acquisition on the condensed consolidated statements of operations.
Operating lease cost, net of sublease income, and cash flowspaid on operating lease liabilities for the three months ended March 31, 2022 and 2021 were as follows (in thousands):
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| Fixed lease cost | $ | 973 | $ | 1,154 | |||||||||||||||||||
| Variable lease cost | 402 | 143 | |||||||||||||||||||||
| Operating lease cost, before sublease income | 1,375 | 1,297 | |||||||||||||||||||||
| Sublease income | (234) | (116) | |||||||||||||||||||||
| Total operating lease cost, net of sublease income | $ | 1,141 | $ | 1,181 | |||||||||||||||||||
| Additional lease information: | |||||||||||||||||||||||
| Cash paid on operating lease liabilities | $ | 1,229 | $ | 217 | |||||||||||||||||||
Right-of-use assets and operating lease liabilities were recorded on the condensed consolidated balance sheets as follows (in thousands):
| March 31, 2022 | December 31, 2021 | ||||||||||
| Right-of-use assets, net | $ | 20,113 | $ | 20,466 | |||||||
| Current lease liabilities | $ | 4,945 | $ | 4,896 | |||||||
| Long-term lease liabilities | 32,504 | 33,267 | |||||||||
| Total operating lease liabilities | $ | 37,449 | $ | 38,163 | |||||||
| Weighted-average remaining lease term (in years) | 10.1 | 10.3 | |||||||||
| Weighted-average discount rate | 5.4 | % | 5.4 | % | |||||||
Blucora, Inc. | Q1 2022 Form 10-Q 13
| 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 | |||||||
| Undiscounted cash flows: | |||||||||||||||||
| Remainder of 2022 | $ | 3,811 | |||||||||||||||
| 2023 | 5,172 | ||||||||||||||||
| 2024 | 5,080 | ||||||||||||||||
| 2025 | 5,013 | ||||||||||||||||
| 2026 | 4,193 | ||||||||||||||||
| Thereafter | 26,130 | ||||||||||||||||
| Total undiscounted cash flows | 49,399 | ||||||||||||||||
| Imputed interest | (11,950) | ||||||||||||||||
| Present value of cash flows | $ | 37,449 | |||||||||||||||
Note 7: Balance Sheet Components
Prepaid expenses and other current assets net and other long-term assets represents amounts pledged as collateral for certainconsisted of the Company's banking arrangements.following (in thousands):
| March 31, 2022 | December 31, 2021 | ||||||||||
| Prepaid expenses | $ | 16,213 | $ | 13,138 | |||||||
| Other current assets | 5,482 | 5,338 | |||||||||
| Total prepaid expenses and other current assets | $ | 21,695 | $ | 18,476 | |||||||
| March 31, 2022 | December 31, 2021 | ||||||||||
| Salaries and related benefit expenses | $ | 10,518 | $ | 26,417 | |||||||
HKFS Contingent Consideration liability (1) | 30,000 | 28,300 | |||||||||
| Accrued legal costs | 1,609 | 2,871 | |||||||||
| Accrued vendor and advertising costs | 10,923 | 3,777 | |||||||||
| Accrued taxes | 3,698 | — | |||||||||
| Other | 4,507 | 4,313 | |||||||||
| Total accrued expenses and other current liabilities | $ | 61,255 | $ | 65,678 | |||||||
(1)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.
| 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 | ) | |||||
| 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 | |||||||||||
Note 6:8: Fair Value Measurements
•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’sour own assumptions.
Blucora, Inc. | Q1 2022 Form 10-Q 14
Assets and Liabilities Measured on a Recurring Basis
The fair value hierarchy of the Company’sour financial assets and liabilities carried at estimated fair value and measured on a recurring basis waswere as follows (in thousands):
| Fair value measurements at the reporting date using | |||||||||||||||||||||||
| March 31, 2022 | 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 | $ | 4,294 | $ | 4,294 | $ | — | $ | — | |||||||||||||||
| Deferred compensation assets | 905 | 905 | — | — | |||||||||||||||||||
| Total assets at fair value | $ | 5,199 | $ | 5,199 | $ | — | $ | — | |||||||||||||||
| HKFS Contingent Consideration liability | $ | 30,000 | $ | — | $ | — | $ | 30,000 | |||||||||||||||
| Deferred compensation liabilities | 905 | 905 | — | — | |||||||||||||||||||
| Total liabilities at fair value | $ | 30,905 | $ | 905 | $ | — | $ | 30,000 | |||||||||||||||
| Fair value measurements at the reporting date using | |||||||||||||||||||||||
| December 31, 2021 | 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 | $ | 4,293 | $ | 4,293 | $ | — | $ | — | |||||||||||||||
| Total assets at fair value | $ | 4,293 | $ | 4,293 | $ | — | $ | — | |||||||||||||||
| HKFS Contingent Consideration liability | $ | 28,300 | $ | — | $ | — | $ | 28,300 | |||||||||||||||
| Total liabilities at fair value | $ | 28,300 | $ | — | $ | — | $ | 28,300 | |||||||||||||||
Cash equivalents are classified within Level 1 of the fair value hierarchy because we value them utilizing quoted prices in active markets.
| 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 | $ | — | |||||||
| Acquisition-related contingent consideration liability | $ | 2,704 | $ | — | $ | — | $ | 2,704 | |||||||
| Total liabilities at fair value | $ | 2,704 | $ | — | $ | — | $ | 2,704 | |||||||
The HKFS Contingent Consideration liability relates to post-closing earn-out payments resulting from the acquisition of Avantax Planning Partners, formerly “HKFS” (see “Note 9—Commitments and Contingencies”). Based on advisory asset levels and the achievement of performance goals for the first earn-out period, we made the full $30.0 million payment in the third quarter of 2021.
| 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 | |||||||
Blucora, Inc. | Q1 2022 Form 10-Q 15
significant decrease to the forecasted advisory asset levels would have resulted in a significantly lower fair value measurement.
A roll forward of the HKFS Contingent Consideration liability is as follows (in thousands):
| HKFS Contingent Consideration liability | |||||
| Balance as of December 31, 2020 | $ | 35,900 | |||
| HKFS Contingent Consideration first earn-out payment | (30,000) | ||||
| Valuation change recognized as expense | 22,400 | ||||
| Balance as of December 31, 2021 | 28,300 | ||||
| Valuation change recognized as expense | 1,700 | ||||
| Balance as of March 31, 2022 | $ | 30,000 | |||
| 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 | |
Fair Value of Financial Instruments
We consider the consolidated statementscarrying values of comprehensive income. As of September 30, 2017, $1.3 million of the contingent consideration liability was included in "Accruedaccounts receivable, commissions receivable, other receivables, prepaid expenses, other current assets, financial professional loans, accounts payable, commissions and advisory fees payable, accrued expenses, and other current liabilities" and $1.4 million in "Other long-term liabilities" on the consolidated balance sheets.
Amortized cost | Gross unrealized gains | Gross unrealized losses | Fair value | ||||||||||||
| Balance as of December 31, 2016 | $ | 7,102 | $ | — | $ | (1 | ) | $ | 7,101 | ||||||
| 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 | |||||||||||
As of September 30, 2017,March 31, 2022, the credit facility'sTerm Loan’s principal amount approximated its fair value as it is a variable rate instrumentwas $560.9 million, and the current applicable margin approximates current market conditions.
| 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 | |
| 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 | |||||||
| Balance as of December 31, 2016 | $ | 15,696 | |
| Net income attributable to noncontrolling interests | 466 | ||
| Balance as of September 30, 2017 | $ | 16,162 | |
Note 9: Commitments and Contingencies
HKFS Contingent Consideration Liability
The HKFS Contingent Consideration to be paid is determined based on advisory asset levels and the achievement of certain performance goals (i) for the period coveredbeginning July 1, 2020 and ending June 30, 2021 and (ii) for the period beginning July 1, 2021 and ending June 30, 2022. Pursuant to the Stock Purchase Agreement, dated as of January 6, 2020, by this Quarterly Reportand among the Company, HKFS, the selling stockholders named therein (the “Sellers”), and JRD Seller Representative, LLC, as the Sellers’ representative (as amended on Form 10-Q, outside ofApril 7, 2020, June 30, 2020, and June 29, 2021) (the “HKFS Purchase Agreement”), the ordinary course ofmaximum aggregate amount that we would be required to pay for each earn-out period is $30.0 million. If the Company’s business, include debt activity (as discussed further in "Note 7: Debt"),asset market values on the applicable measurement date fall below certain specified thresholds, no 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 relatedis owed to the sublease agreementSellers for such period.
Based on advisory asset levels and the achievement of performance goals for the Bellevue facility (as discussed furtherfirst earn-out period specified in "Note 5: Restructuring"), purchase commitments with a vendorthe HKFS Purchase Agreement, we paid the full $30.0 million 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 bySellers in the third quarter of 2018. Additional2021. The estimated fair value of the HKFS Contingent Consideration liability for the second earn-out period was $30.0 million as of March 31, 2022. For additional information on the Company’s Commitments and Contingencies can be found invaluation of the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.HKFS Contingent Consideration liability, see "Note 8—Fair Value Measurements."
From time to time, the Company iswe are subject to various legal proceedings, regulatory matters or fines, or claims that arise in the ordinary course of business. The Company accruesWe accrue a liability when management believes that both 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 the more significant legal proceedings. Although the Company believeswe believe that resolving such claims, individually or in aggregate, will not have a material adverse impact on itsour financial statements, these matters are subject to inherent uncertainties.
Blucora, Inc. | Q1 2022 Form 10-Q 16
We are not currently a shareholder derivative action was filed by Jeffrey Tilden against the Company,party to any such matters for which we have recognized a material liability on our condensed consolidated balance sheet 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.March 31, 2022.
Note 10: Stockholders’ EquityInterest Expense and Other, Net
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| Interest expense | $ | 7,130 | $ | 7,183 | |||||||||||||||||||
| Amortization of debt issuance costs | 389 | 363 | |||||||||||||||||||||
| Amortization of debt discount | 292 | 277 | |||||||||||||||||||||
| Total interest expense | 7,811 | 7,823 | |||||||||||||||||||||
| Interest income and other | 30 | 60 | |||||||||||||||||||||
| Interest expense and other, net | $ | 7,841 | $ | 7,883 | |||||||||||||||||||
| 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 | |||||||
| 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 | |||||||
Note 11: Segment InformationIncome Taxes
For 2022, our provision for income taxes in interim periods is based on our estimated annual effective tax rate. We record cumulative adjustments in the quarter in which a change in the estimated annual effective rate is determined. The Company has two reportable segments:estimated annual effective tax rate does not include the Wealth Management segmenteffects of discrete events that may occur during the year. The effect of these events, if any, is recorded in the quarter in which the event occurs.
We recorded income tax expense of $2.6 million and $1.7 million for the three months ended March 31, 2022 and 2021, respectively. Our effective income tax rate for the three months ended March 31, 2022 and March 31, 2021 differed from the 21% statutory rate primarily due to the release of valuation allowances and the Tax Preparation segment.effect of state income taxes. We maintain a valuation allowance for federal net operating loss carryforwards that we have concluded it is more likely than not that the related deferred tax benefits will not be realized. This valuation allowance does not prevent us from utilizing unexpired net operating losses to offset taxable income in future periods. The former Searchmajority of these net operating losses will either be utilized or expire between 2022 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 purposes of allocating resources and evaluating financial performance.2024.
| 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 | ) | ||||
| 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
Blucora, Inc. | Q1 2022 Form 10-Q 17
The computationcalculations of basic and diluted net income (loss) per share attributable to Blucora, Inc. iswere as follows (in thousands):
________________________
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| Numerator: | |||||||||||||||||||||||
| Net income | $ | 34,620 | $ | 27,646 | |||||||||||||||||||
| Denominator: | |||||||||||||||||||||||
| Basic weighted average common shares outstanding | 48,513 | 48,261 | |||||||||||||||||||||
Dilutive potential common shares (1) | 1,234 | 836 | |||||||||||||||||||||
| Diluted weighted average common shares outstanding | 49,747 | 49,097 | |||||||||||||||||||||
| Net income per share: | |||||||||||||||||||||||
| Basic | $ | 0.71 | $ | 0.57 | |||||||||||||||||||
| Diluted | $ | 0.70 | $ | 0.56 | |||||||||||||||||||
Shares excluded (1) | 910 | 1,289 | |||||||||||||||||||||
(1)Potential common shares were excluded from the calculation of diluted net income per share for these periods because their effect would have been anti-dilutive.
Blucora, Inc. | Q1 2022 Form 10-Q 18
| 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 | |||||||||||
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
Blucora, Inc. (the “Company,” “Blucora,” “we,” “our,” or “us”) is a leading provider of integrated tax-focused wealth management services and software, assisting consumers, small business owners, tax professionals, financial professionals, and certified public accounting (“CPA”) firms. Our Business
Our Wealth Management business consists of the operations of HDV Holdings, Inc.Avantax Wealth Management and its subsidiariesAvantax Planning Partners (collectively, referred to as "HD Vest"the “Wealth Management business” or the "“Wealth Management Business"segment”). HD Vest
Avantax Wealth Management provides tax-focused wealth management solutions for financial advisorsprofessionals, tax professionals, CPA firms, and their clients. Specifically, HD VestAvantax Wealth Management offers its services through its registered broker-dealer, registered investment advisor (“RIA”), and insurance agency subsidiaries and is a leading U.S. tax-focused independent broker-dealer. Avantax Wealth Management works with a nationwide network of financial professionals that operate as independent contractors. Avantax Wealth Management provides these financial professionals with an integrated platform of brokerage, investment advisorytechnical, practice, compliance, operations, sales, and insuranceproduct support tools that enable them to offer tax-advantaged planning, investing, and wealth management services to assisttheir clients.
Avantax Planning Partners is an in-house/employee-based RIA, insurance agency, and wealth management business that partners with CPA firms in making eachorder to provide their consumer and small business clients with holistic financial advisor a financial service center for his/her clients. HD Vest was foundedplanning and advisory services, as well as retirement plan solutions through Avantax Retirement Plan Services. Avantax Planning Partners formerly operated as Honkamp Krueger Financial Services, Inc. (“HKFS”). We acquired HKFS in July 2020 (the “HKFS Acquisition”) and subsequently rebranded it in order to help taxcreate tighter brand alignment through one common and accounting professionals integrate financial services into their practices. HD Vest primarily recruits independent tax professionals with established tax practices and offers specialized training and support, which allows themrecognizable brand. Any reference to join the HD Vest platform as independent financial advisors. HD Vest generates revenue primarily through commissions, quarterly investment advisory fees based on assets under management and other fees.Avantax Planning Partners in this Form 10-Q is inclusive of HKFS.
Our Tax Software business consists of the operations of TaxAct, Inc. (collectively referred to as "TaxAct" (“TaxAct,” the “Tax Software business,”or the "“Tax Preparation business"Software segment”). TaxAct and provides digital do-it-yourself ("DDIY") tax preparation solutionsservices and ancillary services for consumers, small business owners, and tax professionals. TaxAct generates revenue primarilyprofessionals through its online service at www.TaxAct.com. website www.TaxAct.com and its mobile applications.
COVID-19 Pandemic
The TaxAct websiteextended COVID-19 pandemic has had a significant negative impact on the U.S. and global economy and caused substantial disruption in the information contained therein or connected thereto is not intendedU.S. and global securities markets, and as a result, has negatively impacted both our Wealth Management and Tax Software businesses.
In our Wealth Management business, the amount of cash sweep revenue we generate continues to be incorporatedaffected by reference into this Report.the low interest rate environment. In response to the economic and market disruption associated with the COVID-19 pandemic, the Federal Reserve decreased the federal funds rate in 2020 and maintained a low-interest rate environment in 2021, causing a significant decline in cash sweep revenue. The Federal Reserve has signaled adjustments to monetary policy that would increase the federal funds rates, which we expect would positively impact cash sweep revenue. If the Federal Reserve does not increase, or further decreases, the federal funds rates, cash sweep revenue would continue to be negatively impacted.
Blucora, Inc. | Q1 2022 Form 10-Q 19
For additional information on the technology-enabled financial solutions market (the "Strategic Transformation"). The Strategic Transformation referseffects of the COVID-19 pandemic on our results of operations for the selected periods, see “Results of Operations” below. For more information related to the COVID-19 pandemic and its impact to our transformation into a technology-enabled financial solutions company comprised of TaxAct and HD Vest and the divestitures of our Search and Content business that was operated through our former InfoSpace LLC subsidiary ("InfoSpace") and our E-Commerce business that consisted of the operations of Monoprice, Inc. ("Monoprice") in 2016. As part 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.
Blucora, Inc. | Q1 2022 Form 10-Q 20
RESULTS OF OPERATIONS
Summary
| ($ in thousands) | Three Months Ended March 31, | Change | |||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | $ | % | ||||||||||||||||||||||||||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||||||||||||||||||||||||||
| Wealth Management | $ | 166,403 | $ | 154,491 | $ | 11,912 | 7.7 | % | |||||||||||||||||||||||||||||||||||||||
| Tax Software | 141,150 | 123,892 | 17,258 | 13.9 | % | ||||||||||||||||||||||||||||||||||||||||||
| Total revenue | 307,553 | 278,383 | 29,170 | 10.5 | % | ||||||||||||||||||||||||||||||||||||||||||
| Operating income (loss): | |||||||||||||||||||||||||||||||||||||||||||||||
| Wealth Management | 16,421 | 19,396 | (2,975) | (15.3) | % | ||||||||||||||||||||||||||||||||||||||||||
| Tax Software | 58,030 | 50,888 | 7,142 | 14.0 | % | ||||||||||||||||||||||||||||||||||||||||||
| Corporate-level activity | (29,408) | (33,055) | 3,647 | 11.0 | % | ||||||||||||||||||||||||||||||||||||||||||
| Total operating income | 45,043 | 37,229 | 7,814 | 21.0 | % | ||||||||||||||||||||||||||||||||||||||||||
| Interest expense and other, net | (7,841) | (7,883) | 42 | 0.5 | % | ||||||||||||||||||||||||||||||||||||||||||
| Income before income taxes | 37,202 | 29,346 | 7,856 | 26.8 | % | ||||||||||||||||||||||||||||||||||||||||||
| Income tax expense | (2,582) | (1,700) | (882) | (51.9) | % | ||||||||||||||||||||||||||||||||||||||||||
| Net income | $ | 34,620 | $ | 27,646 | $ | 6,974 | 25.2 | % | |||||||||||||||||||||||||||||||||||||||
| (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 | % | |||||||
•Wealth Management and Tax Preparation businesses, respectively, as discussed in the following "Segment Revenue/Operating Income" section.
Blucora, Inc. | Q1 2022 Form 10-Q 21
SEGMENT REVENUE/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"“GAAP”) and include certain reconciling items attributable to each ofour segments. We have two reportable segments: (1) the segments.Wealth Management segment and (2) the Tax Software segment. Segment information appearing in "Note 11: Segment Information" of the Notes to Unaudited Condensed Consolidated Financial
Wealth Management
| ($ in thousands) | Three Months Ended March 31, | Change | |||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | $ | % | ||||||||||||||||||||||||||||||||||||||||||||
| Revenue | $ | 166,403 | $ | 154,491 | $ | 11,912 | 7.7 | % | |||||||||||||||||||||||||||||||||||||||
| Operating income | $ | 16,421 | $ | 19,396 | $ | (2,975) | (15.3) | % | |||||||||||||||||||||||||||||||||||||||
| Segment margin | 9.9 | % | 12.6 | % | |||||||||||||||||||||||||||||||||||||||||||
For the three months ended March 31, 2022, compared to the three months ended March 31, 2021, Wealth Management segment operating results. We analyze these separately.income decreased $3.0 million primarily due to the following factors:
•Wealth Management revenue increased $11.9 million primarily due to a $16.1 million increase in advisory revenue, partially offset by a $4.9 million decrease in commission revenue. The increase in advisory revenue was primarily from increased client asset levels compared to March 31, 2021. Commission revenue was negatively impacted by unfavorable transaction activity and volatility in global markets primarily as a result of Russia’s invasion of Ukraine and the measures taken in response, including sanctions imposed by governments.
•Wealth Management operating expenses increased $14.9 million primarily due to a $10.8 million increase in cost of revenue resulting from increased advisory fees and commissions paid, coupled with $4.1 million of incremental personnel costs. Increased payout ratios correlate with increased asset levels, the timing of certain quarterly billings relative to the market impacts from Russia’s invasion of Ukraine, and the exit of lower producing financial professionals who were concentrated at lower payout levels. Increased personnel costs reflect our strategic investments to drive growth through enhanced service capabilities that support our financial and tax professionals.
•Segment margin compression for the three months ended March 31, 2022, was primarily due to the increase in operating expenses discussed above, coupled with the impact of market volatility on our higher margin service offerings. For the remainder of the year, we expect to incur incremental travel and conference costs associated with reduced COVID-19 travel restrictions; however, we expect for segment margin to increase as a result of the recently announced increase in the federal funds rate.
Blucora, Inc. | Q1 2022 Form 10-Q 22
| (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 | % | |||||||||||||
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 and financial metrics areis as follows:
| ($ in thousands) | Three Months Ended March 31, | Change | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Sources of Revenue | Primary Drivers | 2022 | 2021 | $ | % | ||||||||||||||||||||||||||||||||||||||||||||||||
| Financial professional-driven | Advisory | - Advisory asset levels | $ | 107,169 | $ | 91,119 | $ | 16,050 | 17.6 | % | |||||||||||||||||||||||||||||||||||||||||||
| Commission | - Transactions - Asset levels - Product mix | 47,655 | 52,534 | (4,879) | (9.3) | % | |||||||||||||||||||||||||||||||||||||||||||||||
| Other revenue | Asset-based | - Cash balances - Interest rates - Number of accounts - Client asset levels | 5,663 | 5,329 | 334 | 6.3 | % | ||||||||||||||||||||||||||||||||||||||||||||||
| Transaction and fee | - Account activity - Number of financial professionals - Number of clients - Number of accounts | 5,916 | 5,509 | 407 | 7.4 | % | |||||||||||||||||||||||||||||||||||||||||||||||
| Total revenue | $ | 166,403 | $ | 154,491 | $ | 11,912 | 7.7 | % | |||||||||||||||||||||||||||||||||||||||||||||
| Total recurring revenue | $ | 143,737 | $ | 130,755 | $ | 12,982 | 9.9 | % | |||||||||||||||||||||||||||||||||||||||||||||
| Recurring revenue rate | 86.4 | % | 84.6 | % | |||||||||||||||||||||||||||||||||||||||||||||||||
| (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 advisory fees, trailing commissions, advisory fees, fees from cash sweep programs, and certain transaction and fee revenue, all as described further below in Commissionunder the headings “Advisory revenue,, Advisory” “Commission revenue,, Asset-based” “Asset-based revenue,,” and Transaction“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 metricsMetrics
___________________________
| ($ in thousands) | Three Months Ended March 31, | Change | |||||||||||||||||||||
| 2022 | 2021 | $ | % | ||||||||||||||||||||
| Client assets balances: | |||||||||||||||||||||||
Total client assets (1) | $ | 86,144,055 | $ | 84,776,191 | $ | 1,367,864 | 1.6 | % | |||||||||||||||
Brokerage assets (1) | $ | 45,222,763 | $ | 48,001,320 | $ | (2,778,557) | (5.8) | % | |||||||||||||||
Advisory assets (1) | $ | 40,921,292 | $ | 36,774,871 | $ | 4,146,421 | 11.3 | % | |||||||||||||||
| Advisory assets as a percentage of total client assets | 47.5 | % | 43.4 | % | |||||||||||||||||||
| Number of financial professionals (in ones): | |||||||||||||||||||||||
Independent financial professionals (2) | 3,376 | 3,691 | (315) | (8.5) | % | ||||||||||||||||||
In-house/employee financial professionals (3) | 33 | 27 | 6 | 22.2 | % | ||||||||||||||||||
| Total number of financial professionals | 3,409 | 3,718 | (309) | (8.3) | % | ||||||||||||||||||
Advisory and commission revenue per financial professional (4) | $ | 45.4 | $ | 38.6 | $ | 6.8 | 17.6 | % | |||||||||||||||
(1)In connection with our ongoing integration of acquisitions, we refined the methodology by which we calculate client assets to align the methodologies within our Wealth Management segment for calculating such metrics. Specifically, such changes to the methodology include alignment to one third party data aggregator for assets not placed in custody with our clearing firm and to one consistent set of logic for all assets and transaction types. We have not recast client assets for prior periods to conform to our current presentation as we believe the changes to the calculation to be immaterial.
(2)The number of independent financial professionals includes licensed financial professionals that work with Avantax Wealth Management and operate as independent contractors, as well as licensed referring representatives at CPA firms (approximately 162) that partner with Avantax Planning Partners.
(3)The number of in-house/employee financial professionals includes licensed financial planning consultants, all of which are affiliated with Avantax Planning Partners.
(4)Calculation based on advisory and commission revenue for the three months ended March 31, 2022 and 2021, respectively.
Blucora, Inc. | Q1 2022 Form 10-Q 23
| (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 | % | ||||
Client Assets.Total client assets under administration ("AUA") includesinclude 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 service for a client’s assets, the value of the asset is only counted once in the total amount of AUA. AUAtotal 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 Company’s condensed consolidated balance sheets.
Advisory assets under management ("AUM") includes externalinclude 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 basedfee-based on the value of the AUMadvisory assets for each advisory client. These assets are not reported on the Company’s condensed consolidated balance sheets.sheets.
Total client assets increased $1.4 billion at March 31, 2022 compared withto March 31, 2021 primarily due to $2.4 billion of favorable market change and reinvestment levels (primarily during 2021), partially offset by net client outflows of $1.0 billion. Net client outflows included net client inflows during the three months ended September 30, 2016March 31, 2022 of $0.2 billion.
Advisory assets as a percentage of total client assets increased to 47.5% at March 31, 2022, compared to 43.4% at March 31, 2021. This increase was primarily driven by net client inflows of $3.4 billion, relating in part to our focus on converting off platform, direct to fund assets when appropriate for the client, to fee-based advisory platforms that include ongoing management and which incur higher margins.
Financial Professionals. The number of our financial professionals decreased 8.3% at March 31, 2022 compared to March 31, 2021, with the decrease primarily due to attrition related to lower revenue-producing financial professionals. This attrition led to a 17.6% increase in advisory and commission revenue per financial professional for the comparable periods. The decrease in the number of financial professionals was partially offset by our continued recruitment and onboarding of independent financial professionals.
Advisory Revenue.Advisory revenue primarily includes fees charged to clients in advisory accounts for which we are the RIA. These fees are based on the value of assets within these advisory accounts. For advisory revenues generated by Avantax Wealth Management, advisory fees are typically billed quarterly, in advance, and the related advisory revenues are deferred and recognized ratably over the period in which our performance obligations have been completed. For advisory revenue increased approximately $6.7 milliongenerated by Avantax Planning Partners, advisory fees are typically billed quarterly, in arrears, and the related advisory revenues are accrued and recognized ratably over the period in which our performance obligations were completed. Because advisory fees are based on advisory assets on the last day of each quarter, our revenues are impacted, in part, by the timing of market movements relative to when clients are billed.
Advisory asset balances were as discussedfollows (in thousands):
| Three Months Ended March 31, | Change | ||||||||||||||||||||||
| 2022 | 2021 | $ | % | ||||||||||||||||||||
| Advisory assets—independent financial professionals | $ | 34,393,359 | $ | 31,712,984 | $ | 2,680,375 | 8.5 | % | |||||||||||||||
| Advisory assets—in-house/employee financial professionals | 5,163,741 | 3,794,739 | 1,369,002 | 36.1 | % | ||||||||||||||||||
| Retirement advisory assets—in-house financial professionals | 1,364,192 | 1,267,148 | 97,044 | 7.7 | % | ||||||||||||||||||
| Total advisory assets | $ | 40,921,292 | $ | 36,774,871 | $ | 4,146,421 | 11.3 | % | |||||||||||||||
Blucora, Inc. | Q1 2022 Form 10-Q 24
The activity within our advisory assets was as follows (in thousands):
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| Balance, beginning of the period | $ | 42,179,051 | $ | 35,603,557 | |||||||||||||||||||
| Net new advisory assets | 1,166,673 | 368,863 | |||||||||||||||||||||
| Market impact and other | (2,424,432) | 802,451 | |||||||||||||||||||||
| Balance, end of the period | $ | 40,921,292 | $ | 36,774,871 | |||||||||||||||||||
| Advisory revenue | $ | 107,169 | $ | 91,119 | |||||||||||||||||||
Average advisory fee rate (1) | 25 bps | 26 bps | |||||||||||||||||||||
_________________________
(1)For the three months ended March 31, 2022 and March 31, 2021, average advisory fee rate equals advisory revenue for the relevant quarterly period divided by each source of revenue below.
Compared to March 31, 2021, advisory assets increased $4.1 billion, driven by a $3.4 billion increase in net new advisory assets, and reinvestment levels of $0.7 billion. Net new advisory assets benefited from a focus on converting off platform, direct to fund assets when appropriate for the client, to fee-based advisory platforms that include ongoing management and which incur higher margins. This increase in advisory assets resulted in a $16.1 million increase in advisory revenue and offset by a $5.9 million increase in operating expenses.compared to the three months ended March 31, 2021. The increase in Wealth Management operating expenses wasaverage advisory fee rates between the two periods were relatively flat.
For the three months ended March 31, 2022, advisory assets declined $1.3 billion primarily due to higher commissions paid to our financial advisors, which fluctuatedvolatility in proportion toglobal markets as a result of Russia’s invasion of Ukraine and the changemeasures taken in underlying commission and advisory revenues earned on client accounts.response, including sanctions imposed by governments.
Commission Revenue. The Wealth Management revenue increased approximately $21.3 million as discussed by each source of revenue below.
Our commission revenue, by product category and by sales-based and trailing,type of commission revenue, was as follows:follows (in thousands):
| Three Months Ended March 31, | Change | ||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | $ | % | ||||||||||||||||||||||||||||||||||||||||||||
| By product category: | |||||||||||||||||||||||||||||||||||||||||||||||
| Mutual funds | $ | 19,383 | $ | 23,694 | $ | (4,311) | (18.2) | % | |||||||||||||||||||||||||||||||||||||||
| Variable annuities | 16,297 | 18,022 | (1,725) | (9.6) | % | ||||||||||||||||||||||||||||||||||||||||||
| Insurance | 3,724 | 5,625 | (1,901) | (33.8) | % | ||||||||||||||||||||||||||||||||||||||||||
| General securities | 8,251 | 5,193 | 3,058 | 58.9 | % | ||||||||||||||||||||||||||||||||||||||||||
| Total commission revenue | $ | 47,655 | $ | 52,534 | $ | (4,879) | (9.3) | % | |||||||||||||||||||||||||||||||||||||||
| By type of commission: | |||||||||||||||||||||||||||||||||||||||||||||||
| Transaction-based | $ | 20,624 | $ | 22,367 | $ | (1,743) | (7.8) | % | |||||||||||||||||||||||||||||||||||||||
| Trailing | 27,031 | 30,167 | (3,136) | (10.4) | % | ||||||||||||||||||||||||||||||||||||||||||
| Total commission revenue | $ | 47,655 | $ | 52,534 | $ | (4,879) | (9.3) | % | |||||||||||||||||||||||||||||||||||||||
| (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 | % | |||||||||
| (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 | |||||||
Blucora, Inc. | Q1 2022 Form 10-Q 25
Transaction and fee revenue:Fee Revenue.Transaction and fee revenue primarily includes support fees charged to financial professionals, 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,professionals, clients, financial institutions, and financial institutions.retirement plan sponsors.
| ($ in thousands) | Three Months Ended March 31, | Change | |||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | $ | % | ||||||||||||||||||||||||||||||||||||||||||||
| Revenue | $ | 141,150 | $ | 123,892 | $ | 17,258 | 13.9 | % | |||||||||||||||||||||||||||||||||||||||
| Operating income | $ | 58,030 | $ | 50,888 | $ | 7,142 | 14.0 | % | |||||||||||||||||||||||||||||||||||||||
| Segment margin | 41.1 | % | 41.1 | % | |||||||||||||||||||||||||||||||||||||||||||
For the three months ended September 30, 2017March 31, 2022, compared with nineto the three months ended September 30, 2016March 31, 2021, Tax Software operating income increased $7.1 million due to the following factors:
•Tax Software operating expenses increased $10.1 million primarily relateddue to advisor fee increases.increased investments in seasonal customer care support and tax experts and an increase in strategic advertising and marketing spend.
Sources of Revenue
Tax Preparation
| (In thousands, except percentages) | Three months ended September 30, | Nine months ended September 30, | |||||||||||||||||||
| 2017 | 2016 | Percentage Change | 2017 | 2016 | Percentage Change | ||||||||||||||||
| Revenue | $ | 3,362 | $ | 3,149 | 7 | % | $ | 156,936 | $ | 135,614 | 16 | % | |||||||||
| Operating income (loss) | $ | (6,238 | ) | $ | (4,382 | ) | 42 | % | $ | 83,410 | $ | 72,987 | 14 | % | |||||||
| Segment margin | (186 | )% | (139 | )% | 53 | % | 54 | % | |||||||||||||
We classify Tax Software revenue into two different categories: consumer revenue and professional revenue. Consumer revenue is derived from products and services sold to directly customers primarily for the preparation of individual or business tax returns. Professional revenue represents Tax Software revenue derived from products sold to tax return preparers who utilize our offerings to service end-user customers.
Revenue by category was as well as other offeringsfollows (in thousands):
| Three Months Ended March 31, | Change | ||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | $ | % | ||||||||||||||||||||||||||||||||||||||||||||
| Consumer | $ | 125,261 | $ | 110,567 | $ | 14,694 | 13.3 | % | |||||||||||||||||||||||||||||||||||||||
| Professional | 15,889 | 13,325 | 2,564 | 19.2 | % | ||||||||||||||||||||||||||||||||||||||||||
| Total Tax Software revenue | $ | 141,150 | $ | 123,892 | $ | 17,258 | 13.9 | % | |||||||||||||||||||||||||||||||||||||||
Blucora, Inc. | Q1 2022 Form 10-Q 26
Business Metrics
We measure the performance of our Tax Software business using three sets of non-financial metrics, which we consider to be important indicators of the performance of our Tax Software business and ancillary services to consumers and small business owners. We also generate revenueare especially relevant through the end of a completed tax season. These non-financial metrics include key performance indicators for our total Tax Software business, in addition to the consumer and professional tax preparer software that we sell toportions of the Tax Software business:
•We measure our total tax software customers using the total number of accepted federal tax e-files completed by both our consumer tax software customers and our professional tax preparers who use it to prepare and file individual and business returns for their clients.software customers.
•We measure our consumer tax preparationsoftware customers using the number of accepted federal tax e-files made through our software and onlinedigital services. We consider growth in the number of e-files to be an important non-financial metric in measuring the performance of the consumer side of the Tax Preparation business.
•We measure our professional tax preparersoftware customers using three metrics--themetrics: (1) the number of accepted federal tax e-files made through our software, (2) the number of units sold, and (3) the number of e-files per unit sold. We consider growth in
Quantitative information on the number of consumer e-files, professional e-files, professional units sold, and professional e-files per unit sold has been excluded because we do not view the comparison of these areas to be important non-financial metrics in measuring the performance of the professional tax preparer side of the Tax Preparation business.
Corporate-Level Activity
| (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(such as personnel and overhead costs), stock-based compensation, acquisition-relatedacquisition and integration costs, depreciation, amortization of acquired intangible assets, and restructuring. contested proxy and other legal and consulting costs, is not allocated to our reportable segments.
Corporate-level activity by category was as follows (in thousands):
| Three Months Ended March 31, | Change | ||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | $ | % | ||||||||||||||||||||||||||||||||||||||||||||
| Unallocated corporate-level general and administrative expenses | $ | 7,292 | $ | 5,694 | $ | 1,598 | 28.1 | % | |||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | 6,225 | 5,610 | 615 | 11.0 | % | ||||||||||||||||||||||||||||||||||||||||||
| Acquisition and integration | 1,666 | 8,103 | (6,437) | (79.4) | % | ||||||||||||||||||||||||||||||||||||||||||
| Depreciation | 4,674 | 3,243 | 1,431 | 44.1 | % | ||||||||||||||||||||||||||||||||||||||||||
| Amortization of acquired intangible assets | 6,631 | 7,175 | (544) | (7.6) | % | ||||||||||||||||||||||||||||||||||||||||||
| Contested proxy and other legal and consulting costs | 2,920 | 3,230 | (310) | (9.6) | % | ||||||||||||||||||||||||||||||||||||||||||
| Total corporate-level activity | $ | 29,408 | $ | 33,055 | $ | (3,647) | (11.0) | % | |||||||||||||||||||||||||||||||||||||||
For further detail, refer 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.
•Acquisition and costs associated with leadership changes at HD Vest.
•Unallocated general and administrative expenses increased $1.6 million primarily due to incremental personnel costs.
•Depreciation expense increased $1.4 million primarily due to capitalized software costs for our OctoberTax Software business.
Blucora, Inc. | Q1 2022 Form 10-Q 27 2016 announcement to relocate our corporate headquarters by June 2017 from Bellevue, Washington to Irving, Texas. Further detail is provided under the "Operating Expenses - Restructuring" section of the management's discussion and analysis of financial condition and results of operations below.
OPERATING EXPENSES
Cost of Revenue
| ($ in thousands) | Three Months Ended March 31, | Change | |||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | $ | % | ||||||||||||||||||||||||||||||||||||||||||||
| Wealth Management | $ | 119,874 | $ | 108,623 | $ | 11,251 | 10.4 | % | |||||||||||||||||||||||||||||||||||||||
| Tax Software | 9,426 | 5,578 | 3,848 | 69.0 | % | ||||||||||||||||||||||||||||||||||||||||||
| Total cost of revenue | $ | 129,300 | $ | 114,201 | $ | 15,099 | 13.2 | % | |||||||||||||||||||||||||||||||||||||||
| Percentage of revenue | 42.0 | % | 41.0 | % | |||||||||||||||||||||||||||||||||||||||||||
| (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 | % | |||||||||||||||
For the amortization of acquired technology.
Engineering and Technology
| ($ in thousands) | Three Months Ended March 31, | Change | |||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | $ | % | ||||||||||||||||||||||||||||||||||||||||||||
| Engineering and technology | $ | 8,504 | $ | 7,128 | $ | 1,376 | 19.3 | % | |||||||||||||||||||||||||||||||||||||||
| Percentage of revenue | 2.8 | % | 2.6 | % | |||||||||||||||||||||||||||||||||||||||||||
| (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.
Engineering and technology expenses were comparabledo not include the costs of computer hardware and software that are capitalized, depreciated over their useful lives, and recognized on the consolidated statements of operations as either “Cost of Revenue” or “Depreciation.” For more information, see the “Cost of Revenue” and “Depreciation and Amortization of Acquired Intangible Assets” sections contained within this discussion of “Operating Expenses.”
For the three months ended March 31, 2022, compared to the prior period.
Sales and Marketing
| (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 | % | |||||||||||||||
| ($ in thousands) | Three Months Ended March 31, | Change | |||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | $ | % | ||||||||||||||||||||||||||||||||||||||||||||
| Sales and marketing | $ | 84,403 | $ | 77,562 | $ | 6,841 | 8.8 | % | |||||||||||||||||||||||||||||||||||||||
| Percentage of revenue | 27.4 | % | 27.9 | % | |||||||||||||||||||||||||||||||||||||||||||
Sales and marketing expenses primarily consist principally of marketing expenses associated with our Tax Software business (including expenses related to marketing agencies and media companies) and our Wealth Management business, personnel expenses, (salaries, stock-based compensation benefits, and other employee-related costs) andpaid to Avantax Planning Partners in-house/employee financial professionals, the cost of temporary help and contractors, for those engaged in marketing, selling, and sales support operations activities, marketing expenses associated with our HD Vest and TaxAct businesses (which primarily include television, radio, online, text, email, and sponsorship channels), and back officeback-office processing support expenses associated withfor our HD Vest business (occupancy and general office expenses, regulatory fees, and license fees).Wealth Management business.
Blucora, Inc. | Q1 2022 Form 10-Q 28
For the three months ended September 30, 2016
General and Administrative
| ($ in thousands) | Three Months Ended March 31, | Change | |||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | $ | % | ||||||||||||||||||||||||||||||||||||||||||||
| General and administrative | $ | 29,075 | $ | 24,685 | $ | 4,390 | 17.8 | % | |||||||||||||||||||||||||||||||||||||||
| Percentage of revenue | 9.5 | % | 8.9 | % | |||||||||||||||||||||||||||||||||||||||||||
| (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"&A”) expenses primarily 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.
March 31, 2022, compared to the three months ended March 31, 2021, G&A expenses increased $4.4 million primarily due to incremental personnel costs and hardware and software support and maintenance fees.
Acquisition and Integration
| ($ in thousands) | Three Months Ended March 31, | Change | |||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | $ | % | ||||||||||||||||||||||||||||||||||||||||||||
| Change in the fair value of HKFS Contingent Consideration | $ | 1,700 | $ | 6,300 | $ | (4,600) | (73.0) | % | |||||||||||||||||||||||||||||||||||||||
| Professional services and other expenses | (34) | 1,803 | (1,837) | (101.9) | % | ||||||||||||||||||||||||||||||||||||||||||
| Total acquisition and integration | $ | 1,666 | $ | 8,103 | $ | (6,437) | (79.4) | % | |||||||||||||||||||||||||||||||||||||||
| Percentage of revenue | 0.5 | % | 2.9 | % | |||||||||||||||||||||||||||||||||||||||||||
Acquisition and integration expenses primarily relate to costs incurred for the acquisitions of Avantax Planning Partners and 1st Global and consist of employee-related expenses, professional services fees, changes in the fair value of contingent consideration, and other expenses.
For the three months ended March 31, 2022, acquisition and integration expenses decreased $6.4 million, primarily due to a $0.8$4.6 million increase in personnel expenses, mainly related to Strategic Transformation Costs, offset by lower stock-based compensation due to fewer grantsdecrease in the current yearfair value adjustment recorded for the HKFS Contingent Consideration liability, and higher expense recognizeda $1.8 million decrease in the prior year related to the timing of grants.
Depreciation and Amortization of Acquired Intangible Assets
| (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 | % | |||||||||||||||
| ($ in thousands) | Three Months Ended March 31, | Change | |||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | $ | % | ||||||||||||||||||||||||||||||||||||||||||||
| Depreciation | $ | 2,931 | $ | 2,300 | $ | 631 | 27.4 | % | |||||||||||||||||||||||||||||||||||||||
| Amortization of acquired intangible assets | 6,631 | 7,175 | (544) | (7.6) | % | ||||||||||||||||||||||||||||||||||||||||||
| Total depreciation and amortization of acquired intangible assets | $ | 9,562 | $ | 9,475 | $ | 87 | 0.9 | % | |||||||||||||||||||||||||||||||||||||||
| Percentage of revenue | 3.1 | % | 3.4 | % | |||||||||||||||||||||||||||||||||||||||||||
Depreciation of property, equipment, and equipmentsoftware, net includes depreciation of computer equipment and software (including internally developed software), office equipment and furniture, and leasehold improvements not recognized in cost of revenue.improvements. Amortization of acquired intangible assets primarily includes the amortization of financial professional, sponsor, and customer relationships, which are amortized over their estimated lives. Depreciation and amortization expenses were comparable to
For the prior periods.
| (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 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 | ||||||||||
Blucora, Inc. | Q1 2022 Form 10-Q 29
INTEREST EXPENSE AND OTHER, NET
| ($ in thousands) | Three Months Ended March 31, | Change | |||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | $ | % | ||||||||||||||||||||||||||||||||||||||||||||
| Interest expense | $ | 7,130 | $ | 7,183 | $ | (53) | (0.7) | % | |||||||||||||||||||||||||||||||||||||||
| Amortization of debt issuance costs | 389 | 363 | 26 | 7.2 | % | ||||||||||||||||||||||||||||||||||||||||||
| Amortization of debt discount | 292 | 277 | 15 | 5.4 | % | ||||||||||||||||||||||||||||||||||||||||||
| Total interest expense | 7,811 | 7,823 | (12) | (0.2) | % | ||||||||||||||||||||||||||||||||||||||||||
| Interest income and other | 30 | 60 | (30) | (50.0) | % | ||||||||||||||||||||||||||||||||||||||||||
| Interest expense and other, net | $ | 7,841 | $ | 7,883 | $ | (42) | (0.5) | % | |||||||||||||||||||||||||||||||||||||||
For the three months ended March 31, 2022, compared 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.
INCOME TAXES
| (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 | |||||||||
We recorded income tax expense of $0.2$2.6 million and $6.0$1.7 million infor the three and nine months ended September 30, 2017,March 31, 2022, and 2021, respectively. IncomeThe prior period interim tax provision was prepared by applying a year-to-date effective tax rate to income before income taxes. The current period interim tax provision was prepared by applying an estimated annual effective tax rate to income before income taxes and by calculating the tax effect of discrete items recognized during the quarter (if applicable).
Our effective income tax rate for the three months ended March 31, 2022, and March 31, 2021 differed from taxes at the 21% statutory rates in 2017rate primarily due to the January 1, 2017 implementationrelease of Accounting Standards Update ("ASU") 2016-09 on stock-based compensation (see "Note 2: Summaryvaluation allowances and the effect of Significant Accounting Policies" of the Notes to Unaudited Condensed Consolidated Financial Statements in Part I Item 1 of this report for additional information). We recorded income tax benefit of $8.5 million and income tax expense of $8.9 million in the three and nine months ended September 30, 2016, respectively. Income taxes differed from taxes at the statutory rates in 2016 primarily due to the domestic manufacturing deduction, offset by non-deductible compensation and state income taxes.
Blucora, Inc. | Q1 2022 Form 10-Q 30
| (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 | |||||||||
NON-GAAP FINANCIAL MEASURES
Adjusted EBITDA: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,interest expense and other, loss, net, the impact of noncontrolling interests,acquisition and integration costs, contested proxy and other legal and consulting costs, and income tax expense. Interest expense the effectsand other, net primarily consists of discontinued operations,interest expense, net. Acquisition and acquisition-related costs. Restructuringintegration costs primarily relate to the moveacquisitions of our corporate headquarters, which was announced in the fourth quarter of 2016. Acquisition-related costs include professional services feesAvantax Planning Partners and other direct transaction costs and changes in the fair value 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 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.1st Global.
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). 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 toGAAP net income (loss) attributable to Blucora, Inc., which we believe to be the most comparable GAAP measure, to Adjusted EBITDA, is presented below:
| Three Months Ended March 31, | |||||||||||||||||||||||
| ($ in thousands) | 2022 | 2021 | |||||||||||||||||||||
| Net income | $ | 34,620 | $ | 27,646 | |||||||||||||||||||
| Stock-based compensation | 6,225 | 5,610 | |||||||||||||||||||||
| Depreciation and amortization of acquired intangible assets | 11,305 | 10,418 | |||||||||||||||||||||
| Interest expense and other, net | 7,841 | 7,883 | |||||||||||||||||||||
| Acquisition and integration—Excluding change in the fair value of HKFS Contingent Consideration | (34) | 1,803 | |||||||||||||||||||||
| Acquisition and integration—Change in the fair value of HKFS Contingent Consideration | 1,700 | 6,300 | |||||||||||||||||||||
| Contested proxy and other legal and consulting costs | 2,920 | 3,230 | |||||||||||||||||||||
| Income tax expense | 2,582 | 1,700 | |||||||||||||||||||||
| Adjusted EBITDA | $ | 67,159 | $ | 64,590 | |||||||||||||||||||
Non-GAAP Net Income (Loss) and Non-GAAP Net Income (Loss) Per Share
| (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 | |||||||
We believe that non-GAAP net income (loss)Non-GAAP Net Income (Loss) and non-GAAP net income (loss)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 that have not been, or are not expected to be, settled in cash. Additionally, we believe that non-GAAP net income (loss)Non-GAAP Net Income (Loss) and non-GAAP net income (loss)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)Net Income (Loss) and Non-GAAP Net Income (Loss) 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 GAAP net income (loss) per share. Other companies may calculate non-GAAP net incomeNon-GAAP Net Income (Loss) and Non-GAAP Net Income (Loss) per share differently, and, therefore, our non-GAAP net incomethese measures may not be comparable to similarly titled measures of other companies.
Blucora, Inc. | Q1 2022 Form 10-Q 31
A reconciliation of our non-GAAPGAAP net income to(loss) and GAAP net income attributable to Blucora, Inc.,(loss) per share, which we believe to be the most comparable GAAP measure,measures, to Non-GAAP Net Income (Loss) and Non-GAAP Net Income (Loss) per share, respectively, is presented below:
| ($ in thousands) | Three Months Ended March 31, | ||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| Net income | $ | 34,620 | $ | 27,646 | |||||||||||||||||||
| Stock-based compensation | 6,225 | 5,610 | |||||||||||||||||||||
| Amortization of acquired intangible assets | 6,631 | 7,175 | |||||||||||||||||||||
| Acquisition and integration—Excluding change in the fair value of HKFS Contingent Consideration | (34) | 1,803 | |||||||||||||||||||||
| Acquisition and integration—Change in the fair value of HKFS Contingent Consideration | 1,700 | 6,300 | |||||||||||||||||||||
| Contested proxy and other legal and consulting costs | 2,920 | 3,230 | |||||||||||||||||||||
| Cash tax impact of adjustments to GAAP net income | (959) | (543) | |||||||||||||||||||||
| Non-cash income tax (benefit) expense | 1,506 | (269) | |||||||||||||||||||||
| Non-GAAP Net Income | $ | 52,609 | $ | 50,952 | |||||||||||||||||||
| Per diluted share: | |||||||||||||||||||||||
Net income (1) | $ | 0.70 | $ | 0.56 | |||||||||||||||||||
| Stock-based compensation | 0.13 | 0.11 | |||||||||||||||||||||
| Amortization of acquired intangible assets | 0.13 | 0.15 | |||||||||||||||||||||
| Acquisition and integration—Excluding change in the fair value of HKFS Contingent Consideration | — | 0.04 | |||||||||||||||||||||
| Acquisition and integration—Change in the fair value of HKFS Contingent Consideration | 0.03 | 0.13 | |||||||||||||||||||||
| Contested proxy and other legal and consulting costs | 0.06 | 0.07 | |||||||||||||||||||||
| Cash tax impact of adjustments to GAAP net income | (0.02) | (0.01) | |||||||||||||||||||||
| Non-cash income tax (benefit) expense | 0.03 | (0.01) | |||||||||||||||||||||
| Non-GAAP Net Income per share — Diluted | $ | 1.06 | $ | 1.04 | |||||||||||||||||||
| Diluted weighted average shares outstanding | 49,747 | 49,097 | |||||||||||||||||||||
____________________________
| (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 | |||||||||||
Blucora, Inc. | Q1 2022 Form 10-Q 32
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 30, 2017,March 31, 2022, we had cash and marketablecash equivalents of $144.2 million. We generally invest our excess cash in money market funds that are made up of securities issued by agencies of the U.S. government. We may invest, from time-to-time, in other vehicles, such as debt instruments issued by the U.S. federal government and its agencies, international governments, municipalities, and publicly held corporations, as well as commercial paper and insured time deposits with commercial banks. Specific holdings can vary from period to period depending upon our cash requirements. Our financial instrument investments of approximately $78.6 million, consisting entirely of cashheld at March 31, 2022 had minimal default risk and cash equivalents. short-term maturities.
Our HD VestAvantax Wealth Management broker-dealer subsidiary operates in a highly regulated industry and is 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'son Avantax Wealth Management operations. As of September 30, 2017, HD VestMarch 31, 2022, Avantax Wealth Management met all capital adequacy requirements to which it was subject.
Since our results of operations are sensitive to various factors, including, among others, the level of competition we face, regulatory and legal impacts, and political and economic conditions, such factors could adversely affect our liquidity and capital resources. In addition, due to the COVID-19 pandemic, we have experienced and may continue to experience near- to mid-term volatility in our results of operations that could further increase our liquidity needs. Due to this volatility, we have taken several measures to ensure proper liquidity levels and are maintaining flexibility in our cash needs for servicing debt,flows. In July 2020, we increased the principal outstanding under our Term Loan to fund the acquisition of Avantax Planning Partners and provide additional working capital flexibility. In addition, in April 2021, we increased the amount available for borrowings under the Revolver from $65.0 million to $90.0 million. Overall, we believe these measures provide us with the capital flexibility to satisfy our obligations, fund our operations, and capital expenditures" in Part II Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2016.
In May 22, 2017, we entered into ana credit agreement (as the same has been amended, the “Credit Agreement”) with a syndicate of lenders that provides for a new senior securedterm loan facility (the “Term Loan”) and a revolving line of credit facility 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 of a committed $50.0 million revolving credit loan, which includes(including a letter of credit sub-facility,sub-facility) (the “Revolver”) for working capital, capital expenditures, and general business purposes (as amended, the “Senior Secured Credit Facility”). The Term Loan has a $375.0maturity date of May 22, 2024 (the “Term Loan Maturity Date”).
On April 26, 2021, to ensure adequate liquidity and flexibility to support growth, we entered into Amendment No. 5 to the Credit Agreement (the “Credit Agreement Amendment”). Pursuant to the Credit Agreement Amendment, the Credit Agreement was amended to, among other things, refinance the existing $65.0 million term loanRevolver and add $25.0 million of additional revolving credit commitments, for an aggregate $425.0principal amount of $90.0 million in revolving credit facility.commitments (the “New Revolver”). The finalNew Revolver has a maturity datesdate of February 21, 2024 (the “New Revolver Maturity Date”).
As of March 31, 2022, we had $560.9 million in principal amount outstanding under the Term Loan and no amounts outstanding under the New Revolver. Based on aggregate loan commitments as of March 31, 2022, approximately $90.0 million was available for future borrowing at March 31, 2022 under the Senior Secured Credit
Blucora, Inc. | Q1 2022 Form 10-Q 33
Facility, subject to customary terms and conditions. In addition, the Company is required to make principal amortization payments on the Term Loan quarterly on the last business day of each March, June, September, and December, in an amount equal to approximately $0.5 million (subject to reduction for prepayments), with the remaining principal amount of the revolving credit loan and term loan are May 22, 2022 and May 22, 2024, respectively. Term Loan due on the Term Loan Maturity Date.
The interest ratesrate on the revolving credit loanTerm Loan is variable at the London Interbank Offered Rate (subject to a floor of 1.0%), plus the applicable interest rate margin of 4.0% for Eurodollar Rate Loans (as defined in the Credit Agreement) and term loan3.0% for ABR Loans (as defined in the Credit Agreement). As of March 31, 2022, the applicable interest rate on the Term Loan was 5.0%. Depending on the Consolidated First Lien Net Leverage Ratio (as defined in the Credit Agreement), the applicable interest rate margin on the New Revolver ranges from 2.0% to 2.5% for Eurodollar Rate Loans and 1.0% to 1.5% for ABR Loans. The Company is required to pay a commitment fee on the undrawn commitment under the New Revolver in a percentage that is dependent on the Consolidated First Lien Net Leverage Ratio that ranges from 0.35% to 0.4%. Interest is payable at the end of each interest period, typically quarterly.
By June 2023, all U.S. Dollar London Interbank Offered Rate (“LIBOR”) tenors will cease to be published and floating rate instruments that used U.S. Dollar LIBOR will need to shift to a substitute base index. To minimize disruption arising from such transition, the market has begun to shift to alternative fallback rates, such as Secured Overnight Financing Rate (“SOFR”) as a replacement benchmark for floating rate LIBOR based loans. Unless (i) such LIBOR tenors cease to be provided at an earlier date or (ii) we and the administrative agent to the Credit Agreement make an “early opt-in election” to replace the rate prior to cessation of LIBOR in accordance with the Credit Agreement, we will continue to have the option under the Credit Agreement to make drawdowns using 1-Day, 1-Month, 3-Month, and 6-Month tenor U.S. Dollar LIBOR until June 2023. The Credit Agreement Amendment provides for a process for transition to a fallback rate consistent with industry practice and permits the administrative agent to the Credit Agreement to apply certain updates to the Credit Agreement to effectuate the fallback rate, including a spread adjustment based on the historical basis between LIBOR and the fallback rate.
Obligations under the Senior Secured Credit Facility are variable.guaranteed by certain of the Company’s subsidiaries and secured by substantially all the assets of the Company and certain of its subsidiaries (including certain subsidiaries acquired in the acquisition of Avantax Planning Partners and certain other material subsidiaries). The credit facilitySenior Secured Credit Facility includes financial and operating covenants with respect to certain ratios, including(including a net leverage ratio,Consolidated Total Net Leverage Ratio), which are defined furtherset forth in detail in the credit facility agreement. We wereCredit Agreement.
Pursuant to the Credit Agreement Amendment, if the Company’s usage of the New Revolver exceeds 30% of the aggregate commitments under the New Revolver on the last day of any calendar quarter, the Company shall not permit the Consolidated Total Net Leverage Ratio (as defined in the Credit Agreement) to exceed (i) 4.75 to 1.00 for the period beginning on April 1, 2021 and ending on December 31, 2021, (ii) 4.25 to 1.00 for the period beginning on January 1, 2022 and ending on September 30, 2022, (iii) 4.00 to 1.00 for the period beginning on October 1, 2022 and ending on December 31, 2022, and (iv) 3.50 to 1.00 for the period beginning on January 1, 2023 and ending on the New Revolver Maturity Date.
Except as described above, the New Revolver has substantially the same terms as the previous Revolver, including certain covenants and events of default. The Company was in compliance with thesethe debt covenants of the Senior Secured Credit Facility as of September 30, 2017. We initially borrowed $375.0March 31, 2022.
For additional information on the Term Loan, the New Revolver, and the Credit Agreement, see “Item 1. Financial Statements—Note 5.”
Stock Repurchase Plan
As of December 31, 2021, we had $100.0 million authorized under our stock repurchase plan. Pursuant to the stock repurchase 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, may be suspended or discontinued at any time, and does not have a specified expiration date. 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.
For the three months ended March 31, 2022, we repurchased approximately 1.6 million shares of our common stock under the term loan. Through the third quarterstock repurchase plan for an aggregate purchase price of 2017, we have made prepayments of $25.0 million million towards the term loan. We have not borrowed any amountsapproximately $30.5 million. The
Blucora, Inc. | Q1 2022 Form 10-Q 34
remaining authorized amount under the revolving credit loan.stock repurchase plan as of March 31, 2022, was approximately $69.5 million. For further detail, see "Note 7: Debt"the three months ended March 31, 2021, we did not repurchase any shares of our common stock under the Notesstock repurchase plan.
Subsequent to Unaudited Condensed Consolidated Financial Statements in Part I Item 1March 31, 2022, and through the date of this report.
plan.
Contractual Obligations and Commitments
On July 1, 2020, we closed the acquisition of Avantax Planning Partners, formerly “HKFS”, for an upfront cash purchase price of $104.4 million. The purchase price was subject to variable contingent consideration, or earn-out payments (the “HKFS Contingent Consideration”), totaling a maximum of $60.0 million.
The material events during 2017, outsideHKFS Contingent Consideration to be paid is determined based on advisory asset levels and the achievement of certain performance goals (i) for the ordinary courseperiod beginning July 1, 2020 and ending June 30, 2021 and (ii) for the period beginning July 1, 2021 and ending June 30, 2022. Pursuant to the Stock Purchase Agreement, dated as of our business, include debt activityJanuary 6, 2020, by and among the Company, HKFS, the selling stockholders named therein (the “Sellers”), and JRD Seller Representative, LLC, as the Sellers’ representative (as discussed further in "Note 7: Debt"amended on April 7, 2020, June 30, 2020, and June 29, 2021) (the “HKFS Purchase Agreement”), the maximum aggregate amount that we would be required to pay for each earn-out period is $30.0 million. If the asset market values on the applicable measurement date fall below certain specified thresholds, no 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 relatedis owed to the sublease agreementSellers for such period.
Based on advisory asset levels and the achievement of performance goals for the Bellevue facility (as discussed furtherfirst earn-out period specified in "Note 5: Restructuring"), purchase commitments with a vendor to provide cloud computation services of $11.3the HKFS Purchase Agreement, we paid the full $30.0 million over the next four years, and a commitment to switch to a new clearing firm provider that has been selected by the Company byin the third quarter of 2018. Additional information2021. The estimated fair value of the HKFS Contingent Consideration liability for the second earn-out period was $30.0 million as of March 31, 2022 and is included within “Accrued expenses and other current liabilities” on the condensed consolidated balance sheets. We expect to pay the full $30.0 million in the third quarter of 2022.
In addition, the Company has entered into several asset purchase agreements that are accounted for as asset acquisitions. These acquisitions may include up-front cash consideration, fixed deferred cash consideration, and contingent consideration arrangements. Future fixed payments are recognized as customer relationship intangible assets on the date of acquisition. Contingent consideration arrangements encompass obligations to make future payments to sellers contingent upon the achievement of future financial targets. These contingent payments are not recognized until all contingencies are resolved and the consideration is paid. As of March 31, 2022, the maximum future fixed and contingent payments associated with these asset acquisitions was $17.0 million, with specified payment dates from 2022 through 2026.
Blucora, Inc. | Q1 2022 Form 10-Q 35
Cash Flows
Our cash flows were comprised of the following (in thousands):
| Three Months Ended March 31, | |||||||||||||||||
| 2022 | 2021 | $ Change | |||||||||||||||
| Net cash provided by operating activities | $ | 47,343 | $ | 53,722 | $ | (6,379) | |||||||||||
| Net cash used by investing activities | (5,482) | (9,185) | 3,703 | ||||||||||||||
| Net cash used by financing activities | (32,463) | (1,255) | (31,208) | ||||||||||||||
| Net increase in cash, cash equivalents, and restricted cash | $ | 9,398 | $ | 43,282 | $ | (33,884) | |||||||||||
Net Cash from Operating Activities
Net cash provided by operating activities consists of net income, offset by certain non-cash adjustments, and changes in operating assets and liabilities, which were as follows (in thousands):
| Three Months Ended March 31, | |||||||||||||||||
| 2022 | 2021 | $ Change | |||||||||||||||
| Net income | $ | 34,620 | $ | 27,646 | $ | 6,974 | |||||||||||
| Non-cash adjustments to net income | 21,235 | 23,704 | (2,469) | ||||||||||||||
| Operating cash flows before changes in operating assets and liabilities | 55,855 | 51,350 | 4,505 | ||||||||||||||
| Changes in operating assets and liabilities, net of acquisitions and disposals | (8,512) | 2,372 | (10,884) | ||||||||||||||
| Net cash provided by operating activities | $ | 47,343 | $ | 53,722 | $ | (6,379) | |||||||||||
Net cash provided by operating activities for the three months ended March 31, 2022, included $55.9 million of operating cash flows before changes in operating assets and liabilities and $8.5 million of changes in operating assets and liabilities. Non-cash adjustments to net income for the three months ended March 31, 2022 primarily related to depreciation and amortization costs of $11.3 million, stock-based compensation of $6.2 million, and changes in the fair value of the HKFS Contingent Consideration liability of $1.7 million. As compared to the three months ended March 31, 2021, changes in operating assets and liabilities, net of acquisitions, reduced operating cash flows by $10.9 million primarily due to the timing of settlement for our working capital accounts, and $3.5 million in payments made to financial professionals in support of ongoing growth programs.
Net Cash from Investing Activities
Net cash used by investing activities consists of acquisitions and purchases of property, equipment, and software, and were as follows (in thousands):
| Three Months Ended March 31, | |||||||||||||||||
| 2022 | 2021 | $ Change | |||||||||||||||
| Purchases of property, equipment, and software | $ | (4,731) | $ | (8,598) | $ | 3,867 | |||||||||||
| Asset acquisitions | (751) | (587) | (164) | ||||||||||||||
| Net cash used by investing activities | $ | (5,482) | $ | (9,185) | $ | 3,703 | |||||||||||
For the three months ended March 31, 2022, compared to the three months ended March 31, 2021, net cash used by investing activities decreased $3.7 million primarily due to reduced internally developed software capital expenditures.
Net Cash from Financing Activities
Net cash from financing activities primarily consists of debt issuance and repayments, common stock and stock-based awards transactions, and acquisition-related contingent consideration payments. Financing cash flows were as follows (in thousands):
| Three Months Ended March 31, | |||||||||||||||||
| 2022 | 2021 | $ Change | |||||||||||||||
| Payments on credit facilities | $ | (453) | $ | (453) | $ | — | |||||||||||
| Stock repurchases | (30,537) | — | (30,537) | ||||||||||||||
| Proceeds from stock option exercises | 96 | 63 | 33 | ||||||||||||||
| Tax payments from shares withheld for equity awards | (1,569) | (865) | (704) | ||||||||||||||
| Net cash used by financing activities | $ | (32,463) | $ | (1,255) | $ | (31,208) | |||||||||||
Blucora, Inc. | Q1 2022 Form 10-Q 36
For the three months ended March 31, 2022, compared to the three months ended March 31, 2021, we used $31.2 million more cash for financing activities, primarily due to the repurchase of approximately 1.6 million shares of our common stock under the stock repurchase plan for an aggregate purchase price of approximately $30.5 million.
Critical Accounting Estimates
This Management’s Discussion and Analysis of Financial Condition and Results of Operations and the disclosures included elsewhere in this Quarterly Report on Form 10-Q are based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and disclosure of contingencies. In some cases, we could have reasonably used different accounting policies and estimates.
We have identified certain accounting estimates which involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our Commitmentsfinancial condition or results of operations. On an ongoing basis, we evaluate the estimates used. We base our estimates on historical experience, current conditions, and Contingencies canon various other assumptions that we believe to be foundreasonable under the circumstances and, based on information available to us at that time, we make judgments about the carrying values of assets and liabilities that are not readily apparent from other sources, as well as identify and assess our accounting treatment with respect to commitments and contingencies. Actual results may differ significantly from these estimates under different assumptions, judgments, or conditions. The critical accounting estimates which we believe to be the most critical in the preparation of our condensed consolidated financial statements involve business combinations, goodwill impairment, and income taxes. We continually update and assess the facts, circumstances, and assumptions used in making both our critical accounting estimates and judgments related to our other significant accounting matters.
There have been no material changes in our critical accounting policies as disclosed under “Critical Accounting Estimates” in Part II, Item 7 and in Note 2 to the Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2016.2021.
| (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 | |||
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes to ourthe financial instruments for which we are exposed to market risk, as disclosed within our Annual Report on Form 10-K for the year ended December 31, 2021, during the ninethree months ended September 30, 2017, other than related to borrowingsMarch 31, 2022. As of March 31, 2022, we had $560.9 million in principal amount of debt outstanding under the senior secured credit facility entered intoTerm Loan of our Senior Secured Credit Facility, which carries a degree of interest rate risk. This debt has a floating rate portion of its interest rate tied to LIBOR. For further information on May 22, 2017. We borrowed $375.0 millionour outstanding debt, see “Item 1. Financial Statements—Note 5” and the section “Liquidity and Capital Resources” of“Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the term loan when we entered into the senior secured credit facility, and 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%.subheading “Indebtedness.” A hypothetical 100 basis point increase in LIBOR on March 31, 2022 would result in a $3.5$12.3 million increase based upon our September 30, 2017 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, 2016.2021.
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 30, 2017.March 31, 2022. 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 30, 2017.March 31, 2022.
Changes in Internal Control over Financial Reporting
There waswere no change inchanges to our internal control over financial reporting that occurred during the third quarter of 2017three months ended March 31, 2022 that hashave materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting.
Blucora, Inc. | Q1 2022 Form 10-Q 37
PART II—OTHER INFORMATION
Item 1. Legal Proceedings
See "Note 9: Commitments and Contingencies" of the Notes to Unaudited Condensed Consolidated“Item 1. Financial Statements in Part I Item 1 of this report.Statements—Note 9” for information regarding legal proceedings.
Item 1A. Risk Factors
We believe that there hashave been no material changechanges in itsour risk factors as previously disclosed in theour Annual Report on Form 10-K other than as follows:
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table details our repurchases of common stock for the three months ended March 31, 2022 (in thousands, except the average price paid per share data):
| Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Approximate Dollar Value of Shares that May Yet be Purchased under the Plans or Programs | ||||||||||||||||||||||
| January 1-31, 2022 | 190 | $ | 15.73 | 190 | $ | 97,007 | ||||||||||||||||||||
| February 1-28, 2022 | 524 | $ | 18.12 | 524 | $ | 87,510 | ||||||||||||||||||||
| March 1-31, 2022 | 931 | $ | 19.39 | 931 | $ | 69,463 | ||||||||||||||||||||
| Total | 1,645 | $ | 18.56 | 1,645 | ||||||||||||||||||||||
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
We previously adopted the Blucora, Inc. Executive Change of Control Severance Plan (the “Plan”) pursuant to which we may provide severance benefits to designated executive-level employees who experience a “Qualifying Termination” under the Plan within 24 months following a “Change of Control” (as defined in June 2017, and Eric M. Emans, the Company's Chief Financial Officer, has decided notPlan) or within two months prior to relocate with the Company. Consequently, on October 23, 2017, Mr. Emans informed the Company that he intends to resign effectivea Change of Control.
Effective as of November 1, 2017. Upon his terminationMay 2, 2022, the compensation committee of employment,our board of directors adopted the First Amendment to the Blucora, Inc. Executive Change of Control Severance Plan (the “First Amendment”) and designated Christopher W. Walters, our Chief Executive Officer, as a participant in the Plan. The First Amendment amended the Plan to provide that Mr. EmansWalters’ severance multiple will be 2.5 rather than the severance multiple of 2.0 applicable to the other participants in the Plan. As a result of the First Amendment, in the event of a Qualifying Termination, Mr. Walters will receive severance compensationan amount equal to 2.5 multiplied by the sum of Mr. Walters’ (A) annual base salary and (B) target annual bonus for the calendar year in accordancewhich the Qualifying Termination occurs. The First Amendment also modified the Plan provisions with his Amended and Restated Employment Agreement, which was filed as Exhibit 10.4respect to the Company’svesting of performance-based equity awards for all participants that experience a Qualifying Termination to provide that the performance conditions will be deemed
Blucora, Inc. | Q1 2022 Form 10-Q on October 27, 2016.38
The foregoing description of Mr. Emans’ Consulting Agreement does not purport to be complete andsummary is qualified in its entirety by reference to the Consulting Agreement, a copy ofFirst Amendment, which is filed as Exhibit 10.210.1 to this Quarterly Report on Form 10-Q and is incorporated herein by reference herein.reference.
Blucora, Inc. | Q1 2022 Form 10-Q 39
Item 6. Exhibits
| Exhibit Number | Exhibit Description | Form | Date of First Filing | Exhibit Number | Filed Herewith | |||||||||||||||||||||||||||
| 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 | |||||||||||||||||||||||||||||
| Stock Purchase Agreement, dated as of January 6, 2020, by and among Blucora, Inc., Honkamp Krueger Financial Services, Inc., the sellers named therein, and JRD Seller Representative, LLC, as the sellers’ representative, as amended by First Amendment to Stock Purchase Agreement, dated April 7, 2020 and Second Amendment to Stock Purchase Agreement, dated June 30, 2020 | 8-K | July 1, 2020 | 2.1 | |||||||||||||||||||||||||||||
| Third Amendment to Stock Purchase Agreement, dated June 29, 2021, by and among Spirit Acquisitions, LLC, Honkamp Krueger Financial Services, Inc., the sellers named therein, and JRD Seller Representative, LLC, as the sellers’ representative | 8-K | July 2, 2021 | 2.1 | |||||||||||||||||||||||||||||
| First Amendment to the Blucora, Inc. Executive Change of Control Severance Plan | X | |||||||||||||||||||||||||||||||
| 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)) | X | |||||||||||||||||||||||||||||||
| 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)) | X | |||||||||||||||||||||||||||||||
| Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. section 1350) | X | |||||||||||||||||||||||||||||||
| Certification of Principal Financial Officer pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. section 1350) | X | |||||||||||||||||||||||||||||||
| 101 | The following financial statements from the Company's Form 10-Q for the fiscal quarter ended March 31, 2022, formatted in Inline XBRL: (i) Unaudited Condensed Consolidated Balance Sheets, (ii) Unaudited Condensed Consolidated Statements of Operations, (iii) Unaudited Condensed Consolidated Statements of Stockholders' Equity; (iv) Unaudited Condensed Consolidated Statements of Cash Flows, and (v) Notes to Unaudited Condensed Consolidated Financial Statements | X | ||||||||||||||||||||||||||||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | X | ||||||||||||||||||||||||||||||
____________________________
| # | Schedules and exhibits have been omitted pursuant to Item 601(a)(5) 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, 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. | ||||||||||
Blucora, Inc. | Q1 2022 Form 10-Q 40
Exhibit Number | Exhibit Description | Form | Date of First Filing | Exhibit Number | Filed Herewith | |||||
| 10.1 | 8-K | September 5, 2017 | 10.1 | |||||||
| 10.2 | X | |||||||||
| 31.1 | X | |||||||||
| 31.2 | X | |||||||||
| 32.1 | X | |||||||||
| 32.2 | X | |||||||||
| 101 | The following financial statements from the Company's 10-Q for the fiscal quarter ended September 30, 2017, formatted in XBRL: (i) Unaudited Condensed Consolidated Balance Sheets, (ii) Unaudited Condensed Consolidated Statements of Operations, (iii) Unaudited Condensed Consolidated Statements of Cash Flows, and (iv) Notes to Unaudited Condensed Consolidated Financial Statements | X | ||||||||
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| BLUCORA, INC. | ||||||||
| /s/ Marc Mehlman | ||||||||
Marc Mehlman Chief Financial Officer (On behalf of the Principal Financial Officer) | ||||||||
| Date: | ||||||||
Blucora, Inc. | Q1 2022 Form 10-Q 41