Avantax (AVTA) 8-K Blucora Announces Second Quarter Results

Exhibit 99.2

Blucora, Inc.

Supplemental Information

June 30, 2015

Table of Contents

Financial Information
Consolidated Financial Results	2
Reconciliation of Non-GAAP Financial Measures	4
Reconciliation of Operating Free Cash Flow	5
Operating Metrics
Search and Content	6
Tax Preparation	7
E-Commerce	8

Blucora Consolidated Financial Results

(in thousands except %s and net income per share, rounding differences may exist)

	2013				2014																				2015
	FY 12/31				1Q			2Q				3Q				4Q				FY 12/31					1Q			2Q
Segment Revenue
Search and Content (1)	$	428,464			$	106,765		$	79,818			$	74,416			$	65,271			$	326,270				$	58,746		$	52,130
Tax Preparation (2)	91,213				72,279			26,452				2,469				2,519				103,719					81,068			30,900
E-Commerce (3)	54,303				37,139			35,299				37,970				40,323				150,731					35,012			35,946
Total	$	573,980			$	216,183		$	141,569			$	114,855			$	108,113			$	580,720				$	174,826		$	118,976
Segment Income (Loss) (4)
Search and Content (1)	$	82,504			$	19,230		$	14,032			$	12,709			$	9,841			$	55,812				$	8,398		$	6,814
Tax Preparation (2)	40,599				37,402			17,211				(1,859		)		(3,058		)		49,696					44,145			19,890
E-Commerce (3)	4,967				3,478			2,378				3,336				2,851				12,043					2,562			2,624
Total	$	128,070			$	60,110		$	33,621			$	14,186			$	9,634			$	117,551				$	55,105		$	29,328
Segment Income (Loss) % of Revenue
Search and Content	19		%		18		%	18		%		17		%		15		%		17		%			14		%	13		%
Tax Preparation	45		%		52		%	65		%		(75		)%		(121		)%		48		%			54		%	64		%
E-Commerce	9		%		9		%	7		%		9		%		7		%		8		%			7		%	7		%
Total	22		%		28		%	24		%		12		%		9		%		20		%			32		%	25		%
Unallocated Corporate Operating Expense (4)	$	13,829		(5)	$	3,222		$	3,833			$	3,524			$	4,037			$	14,616				$	4,257		$	4,314
Adjusted EBITDA	$	114,241			$	56,888		$	29,788			$	10,662			$	5,597			$	102,935				$	50,848		$	25,014
Other Unallocated (4)
Stock-based compensation	$	11,527		(6)	$	3,408		$	2,958		(7)	$	2,608			$	2,910			$	11,884				$	2,699		$	3,348
Depreciation	4,476				1,395			1,414				1,385				1,387				5,581					1,462			1,509
Amortization of intangible assets	23,789				7,469			7,642			(8)	7,993				7,990				31,094					7,980			7,981
Impairment of goodwill and intangible assets	—				—			—				—				62,817			(9)	62,817					—			—
Interest income	(300		)		(108		)	(88		)		(71		)		(85		)		(352		)			(118		)	(124		)
Interest expense	9,463				3,015			2,764				2,706				2,717				11,202					2,768			2,492
Amortization of debt issuance costs	1,108				281			284				288				290				1,143					348			295
Accretion of debt discounts	2,838				906			916				931				938				3,691					1,131			958
Loss on debt extinguishment and modification expense	1,593				—			—				—				—				—					—			—
Loss on derivative instrument	11,652			(10)	—			—				—				—				—					—			—
Other-than-temporary impairment loss on equity securities	—				—			—				—				—				—					—			964
Impairment of equity investment in privately-held company	3,711				—			—				—				—				—					—			—
Other income, net	(442		)		(25		)	(152		)		(646		)		(95		)		(918		)			(403		)	(8		)
Total	$	69,415			$	16,341		$	15,738			$	15,194			$	78,869			$	126,142				$	15,867		$	17,415
Income (Loss) Before Taxes	$	44,826			$	40,547		$	14,050			$	(4,532	)		$	(73,272	)		$	(23,207	)			$	34,981		$	7,599
Income Tax (Benefit) Expense
Cash	$	1,888			$	2,241		$	1,435			$	(277	)		$	(604	)		$	2,795				$	3,481		$	771
Non-cash (11)	18,539				12,319			3,878				(2,017		)		(4,635		)		9,545					8,400			2,577
Total	$	20,427			$	14,560		$	5,313			$	(2,294	)		$	(5,239	)		$	12,340				$	11,881		$	3,348
GAAP Net Income (Loss)	$	24,399			$	25,987		$	8,737			$	(2,238	)		$	(68,033	)		$	(35,547	)			$	23,100		$	4,251
GAAP Net Income (Loss) Per Share - diluted	$	0.56			$	0.58		$	0.20			$	(0.05	)		$	(1.67	)		$	(0.86	)			$	0.55		$	0.10
Non-GAAP Net Income	$	97,694			$	50,003		$	23,908			$	6,544			$	1,969			$	82,424				$	42,977		$	19,961
Non-GAAP Net Income Per Share - diluted	$	2.25			$	1.12		$	0.55			$	0.15		(12)	$	0.05		(13)	$	1.92		(14	)	$	1.03		$	0.48
Outstanding Shares	42,083				42,203			41,039				40,977				40,882				40,882					40,851			40,944
Basic Shares - GAAP	41,201				42,162			41,570				41,034				40,820				41,396					40,987			40,918
Diluted Shares - GAAP	43,480				44,521			43,084				41,034				40,820				41,396					41,899			41,936
Cash & Short-term Investments	$	333,705			$	336,390		$	278,620			$	280,394			$	301,298			$	301,298				$	311,440		$	296,887
Outstanding Debt - Principal Amount	322,634				278,634			266,634				264,634				295,190				295,190					256,190			231,250
Net Cash	$	11,071			$	57,756		$	11,986			$	15,760			$	6,108			$	6,108				$	55,250		$	65,637

Notes to Consolidated Financial Results on next page

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Notes to Consolidated Financial Results

⁽¹⁾  On May 30, 2014, we acquired HowStuffWorks ("HSW"). The Search and Content segment, formerly known as the Search segment, includes the financial results of HSW beginning on May 30, 2014.

⁽²⁾  On January 31, 2012, we acquired TaxACT, Inc. As a highly seasonal business, almost all of the TaxACT revenue is generated in the first four months of the calendar year.

⁽³⁾  On August 22, 2013, we acquired Monoprice, Inc. Amounts for 2013 represented the results of operations for the Monoprice business from August 22, 2013 to December 31, 2013.

⁽⁴⁾  We do not allocate certain general and administrative costs (including personnel and overhead costs), stock-based compensation, depreciation, amortization of intangible assets, impairment of goodwill and intangible assets, other income/loss, net, or income taxes to the reportable segments. The general and administrative costs are included in Unallocated Corporate Operating Expense.

⁽⁵⁾  Amount in 2013 included $0.6 million in transaction costs related to the Monoprice acquisition.

⁽⁶⁾  Amount in 2013 included $0.5 million in stock-based compensation recorded in association with the vesting of performance-based stock options upon completion of the Monoprice acquisition.

⁽⁷⁾  Amount in 2Q14 included $0.3 million in stock-based compensation recorded in association with the vesting of performance-based stock options upon completion of the HSW acquisition.

⁽⁸⁾  Amount in 2Q14 included $0.2 million related to amortization of acquired intangible assets related to the HSW acquisition.

⁽⁹⁾  In 4Q14, we recognized an impairment of goodwill and trade name intangible assets related to our E-Commerce segment.

⁽¹⁰⁾  Warrant was exercised during 4Q13.

⁽¹¹⁾  Amounts represent the non-cash portion of income taxes from continuing operations. We exclude the non-cash portion of income taxes because of our ability to offset a substantial portion of our cash tax liabilities by using deferred tax assets, which primarily consist of U.S. federal net operating losses. The majority of these deferred tax assets will expire, if unutilized, between 2020 and 2024.

⁽¹²⁾  Calculation in 3Q14 used 42,305,000 diluted shares due to non-GAAP net income.

⁽¹³⁾  Calculation in 4Q14 used 41,875,000 diluted shares due to non-GAAP net income.

⁽¹⁴⁾  Calculation in FY 2014 used 42,946,000 diluted shares due to non-GAAP net income.

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Blucora Reconciliation of Non-GAAP Financial Measures⁽¹⁾ 

(in thousands except net income per share, rounding differences may exist)

	2013			2014															2015
	FY 12/31			1Q			2Q			3Q			4Q			FY 12/31			1Q			2Q
Adjusted EBITDA
Net income (loss) (2)	$	24,399		$	25,987		$	8,737		$	(2,238	)	$	(68,033	)	$	(35,547	)	$	23,100		$	4,251
Stock-based compensation	11,527			3,408			2,958			2,608			2,910			11,884			2,699			3,348
Depreciation and amortization of intangible assets	28,265			8,864			9,056			9,378			9,377			36,675			9,442			9,490
Impairment of goodwill and intangible assets	—			—			—			—			62,817			62,817			—			—
Other loss, net (3)	29,623			4,069			3,724			3,208			3,765			14,766			3,726			4,577
Income tax (benefit) expense	20,427			14,560			5,313			(2,294		)	(5,239		)	12,340			11,881			3,348
Adjusted EBITDA (4)	$	114,241		$	56,888		$	29,788		$	10,662		$	5,597		$	102,935		$	50,848		$	25,014
Non-GAAP Net Income
Net income (loss) (2)	$	24,399		$	25,987		$	8,737		$	(2,238	)	$	(68,033	)	$	(35,547	)	$	23,100		$	4,251
Stock-based compensation	11,527			3,408			2,958			2,608			2,910			11,884			2,699			3,348
Amortization of acquired intangible assets	23,789			7,469			7,642			7,993			7,990			31,094			7,980			7,981
Impairment of goodwill and intangible assets	—			—			—			—			62,817			62,817			—			—
Accretion of debt discount on Convertible Senior Notes	2,674			874			890			907			923			3,594			940			958
Loss on debt extinguishment and modification expense	1,593			—			—			—			—			—			—			—
Loss on derivative instrument	11,652			—			—			—			—			—			—			—
Other-than-temporary impairment loss on equity securities	—			—			—			—			—			—			—			964
Impairment of equity investment in privately-held company	3,711			—			—			—			—			—			—			—
Decrease in non-cash pre-acquisition liability	—			—			—			(665		)	—			(665		)	—			—
Cash tax impact of adjustments to GAAP net income	(189		)	(54		)	(197		)	(44		)	(3		)	(298		)	(142		)	(118		)
Non-cash income tax (benefit) expense (1)	18,538			12,319			3,878			(2,017		)	(4,635		)	9,545			8,400			2,577
Non-GAAP net income (5)	$	97,694		$	50,003		$	23,908		$	6,544		$	1,969		$	82,424		$	42,977		$	19,961
Non-GAAP net income per share	$	2.25		$	1.12		$	0.55		$	0.15		$	0.05		$	1.92		$	1.03		$	0.48
Diluted shares	43,480			44,521			43,084			42,305			41,875			42,946			41,899			41,936

⁽¹⁾  For definitions of these non-GAAP financial measures and their relationship to our GAAP financial statements, please see Note 1 to our Reconciliations of Non-GAAP Financial Measures to the Nearest Comparable GAAP Measures in exhibit 99.1 to the July 30, 2015 Current Report on Form 8-K.

⁽²⁾  As presented in the Preliminary Condensed Consolidated Statements of Operations (unaudited).

⁽³⁾  Other loss, net primarily includes items such as interest income, interest expense, amortization of debt issuance costs, accretion of debt discounts, loss on debt extinguishment and modification expense, loss on derivative instrument, realized gains and losses on available-for-sale investments, impairment losses on equity investments, adjustments to contingent liabilities related to business combinations, and gain on third party bankruptcy settlement.

⁽⁴⁾  We define Adjusted EBITDA differently effective with 4Q14 to include impairment of goodwill and intangible assets. Our new definition of Adjusted EBITDA did not impact presentation of this non-GAAP financial measure for prior periods.

⁽⁵⁾  We define Non-GAAP net income differently effective with 1Q13 to include accretion of debt discount on Convertible Senior notes, 3Q13 to include other-than-temporary impairment losses on equity investments and loss on debt extinguishment and modification expense, 3Q14 to include decrease in non-cash pre-acquisition liability, 4Q14 to include impairment of goodwill and intangible assets, and 2Q15 to include other-than-temporary impairment loss on equity securities. Our new definition of non-GAAP net income did not impact presentation of this non-GAAP financial measure for prior periods.

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Blucora Reconciliation of Operating Free Cash Flow⁽¹⁾ 

(in thousands, rounding differences may exist)

	Last twelve months ended
	June 30, 2014			September 30, 2014			December 31, 2014			March 31, 2015			June 30, 2015
Net cash provided by operating activities	$	81,130		$	79,529		$	55,734		$	57,328		$	55,174
Excess tax benefits from stock-based award activity (2)	36,733			34,605			23,284			26,402			21,450
Purchases of property and equipment	(5,559		)	(5,928		)	(5,213		)	(4,968		)	(4,459		)
Operating free cash flow	$	112,304		$	108,206		$	73,805		$	78,762		$	72,165

⁽¹⁾  We define operating free cash flow as net cash provided by operating activities plus the excess tax benefits from stock-based award activity and less purchases of property and equipment. We believe operating free cash flow is an important liquidity measure that reflects the cash generated by the business after the purchase of property and equipment that can then be used for, among other things, strategic acquisitions and investments in the business, stock repurchases, and funding ongoing operations.

⁽²⁾  The significant majority of excess tax benefits from stock-based award activity represents the utilization of equity net operating loss carryforwards from prior years.

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Blucora Operating Metrics - Search and Content

	2013		2014										2015
Revenue by source	FY 12/31		1Q		2Q		3Q		4Q		FY 12/31		1Q		2Q
Owned & Operated (B2C)	17	%	22	%	17	%	21	%	26	%	21	%	34	%	34	%
Distribution (B2B)	83	%	78	%	83	%	79	%	74	%	79	%	66	%	66	%

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Blucora Operating Metrics - Tax Preparation

(in thousands except %s, rounding differences may exist)

	Tax seasons ended April 16,				Six months ended June 30,
Consumer e-files	2015	2014	% change		2015	2014	% change
Online e-files	5,058	5,067	0	%	5,158	5,189	(1	)%
Desktop e-files	261	246	6	%	266	251	6	%
Sub-total e-files	5,319	5,313	0	%	5,424	5,440	0	%
Free File Alliance e-files (1)	172	210	(18	)%	177	218	(19	)%
Total e-files	5,491	5,523	(1	)%	5,601	5,658	(1	)%

⁽¹⁾  Free File Alliance e-files are provided as part of an IRS partnership that provides free electronic tax filing services to taxpayers meeting certain income-based guidelines.

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Blucora Operating Metrics - E-Commerce

	2014										2015
	1Q		2Q		3Q		4Q		FY 12/31		1Q		2Q
Order numbers % change (1)	(2	)%	(7	)%	(5	)%	(5	)%	(5	)%	(12	)%	(2	)%

⁽¹⁾  Figures represent decrease in order numbers as compared to the comparable prior period.

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