| Summary of Significant Accounting Policies | Note 2: Summary of Significant Accounting Policies Cash, cash equivalents, restricted cash, and cash segregated under federal or other regulations The following table presents cash, cash equivalents, and restricted cash as reported on the consolidated balance sheets and the consolidated statements of cash flows (in thousands): December 31, 2019 2018 Cash and cash equivalents $ 80,820 $ 84,524 Cash segregated under federal or other regulations 5,630 842 Total cash, cash equivalents, and restricted cash $ 86,450 $ 85,366 We generally invest our available cash in high-quality marketable investments. These investments include money market funds invested in securities issued by agencies of the U.S. government. We may invest, from time-to-time, in other vehicles, such as debt instruments issued by the U.S. federal government and its agencies, international governments, municipalities and publicly held corporations, as well as commercial paper and insured time deposits with commercial banks. Specific holdings can vary from period to period depending upon our cash requirements. Such investments are reported at fair value on the consolidated balance sheets. Cash segregated under federal and other regulations is held in a separate bank account for the exclusive benefit of our Wealth Management business clients and is considered restricted cash. Accounts receivable Accounts receivable are stated at amounts due from customers, net of an allowance for doubtful accounts. The allowance for doubtful accounts was not material at December 31, 2019 and 2018 , respectively. Property and equipment Property and equipment are stated at cost. Depreciation is calculated under the straight-line method over the following estimated useful lives: Estimated Useful Life Computer equipment and software 3 years Data center servers 3 years Internally developed software 3 years Office equipment 7 years Office furniture 7 years Leasehold improvements Shorter of lease term or economic life We capitalize certain internal-use software development costs, consisting primarily of contractor costs and employee salaries and benefits allocated on a project or product basis. We capitalized $7.4 million , $6.5 million , and $3.5 million of internal-use software costs for the years ended December 31, 2019 , 2018 , and 2017 , respectively. Business combinations and intangible assets including goodwill We account for business combinations using the acquisition method. Under the acquisition method, the purchase price of the 1st Global Acquisition has been allocated to 1st Global’s tangible assets, identifiable intangible assets, and assumed liabilities based on their estimated fair values at the time of the 1st Global Acquisition. This allocation involves a number of assumptions, estimates, and judgments that could materially affect the timing or amounts recognized in our financial statements. The most subjective areas include determining the fair value of the following: • intangible assets, including the valuation methodology, estimations of future cash flows, discount rates, growth rates, as well as the estimated useful life of intangible assets; • deferred tax assets and liabilities and uncertain tax positions, which were initially estimated as of the 1st Global Acquisition date; • pre-existing liabilities or legal claims, and deferred revenue, in each case as may be applicable; and • goodwill as measured as the excess of consideration transferred over the net of the 1st Global Acquisition date fair values of the assets acquired and the liabilities assumed. The Company’s assumptions and estimates are based upon comparable market data and information obtained from our management and the management of 1st Global. Goodwill is calculated as the excess of the fair value of total consideration over the acquisition-date fair value of net assets, including the amount assigned to identifiable intangible assets, and is assigned to reporting units that are expected to benefit from the synergies of the business combination as of the acquisition date. Reporting units are consistent with reportable segments. Identifiable intangible assets with finite lives are amortized over their useful lives on a straight-line basis, except for advisor relationships which are amortized proportional to expected revenue. Acquisition-related costs, including advisory, legal, accounting, valuation, and other similar costs, are expensed in the periods in which the costs are incurred. The results of operations of acquired businesses are included in the consolidated financial statements from the acquisition date. Goodwill and intangible assets We evaluate goodwill and indefinite-lived intangible assets for impairment annually, as of November 30, or more frequently when events or circumstances indicate that impairment may have occurred. As a result of the Rebranding in the third quarter of 2019, we evaluated the Wealth Management indefinite-lived assets for potential impairment. Accordingly, we evaluated the HD Vest trade name indefinite-lived asset by performing a quantitative impairment test comparing the carrying value of the HD Vest trade name intangible asset to its fair value. The quantitative impairment test determined that the carrying value of the HD Vest trade name exceeded its fair value. As a result, we recognized an impairment charge of $50.9 million on the “Impairment of intangible asset” line on the consolidated statement of comprehensive income for the year ended December 31, 2019. For additional information, see “ Note 6—Goodwill and Other Intangible Assets .” Subsequently, we performed our annual assessment as of November 30, 2019 and determined that no conditions existed that would make it more likely than not that goodwill and the indefinite-lived assets were further impaired. Definite-lived intangible assets are reviewed for impairment when events or circumstances indicate that the carrying value of an asset or group of assets may not be recoverable. The determination of recoverability is based on an estimate of pre-tax undiscounted future cash flows, using our best estimates of future revenues and operating expenses, expected to result from the use and eventual disposition of the asset or group of assets over the remaining economic life of the primary asset in the asset group. We measure the amount of the impairment as the excess of the asset’s carrying value over its fair value. Fair value typically is estimated using the present value of future discounted cash flows, an income approach. The significant estimates in the discounted cash flow model include the weighted-average cost of capital and long-term rates of revenue growth and/or profitability of our businesses. The weighted-average cost of capital considers the relevant risk associated with business-specific characteristics and the uncertainty related to the ability to achieve the projected cash flows. These estimates and the resulting valuations require significant judgment. Fair value of financial instruments We measure cash equivalents and contingent consideration liability at fair value. We consider the carrying values of accounts receivable, commissions receivable, other receivables, prepaid expenses, other current assets, accounts payable, commissions and advisory fees payable, accrued expenses, and other current liabilities to approximate fair values primarily due to their short-term natures. See “ Note 7—Fair Value Measurements ” for additional information. Redeemable noncontrolling interests Noncontrolling interests that are redeemable at the option of the holder and not solely within the control of the issuer are classified outside of stockholders’ equity. In connection with the acquisition of HD Vest in 2015, the former management of HD Vest retained an ownership interest in that business. We were party to put and call arrangements that became exercisable beginning in the first quarter of 2019 with respect to those interests. These put and call arrangements allowed certain former members of HD Vest management to require us to purchase their interests or allow us to acquire such interests for cash, respectively, within ninety days after we filed our Annual Report on Form 10-K for the year ended December 31, 2018, which occurred on March 1, 2019. The redemption value of the arrangements was based upon several factors, including, among others, our implied enterprise value, our implied equity value and certain of our financial performance measures. To the extent that the redemption value of these interests exceeded the value determined by adjusting the carrying value for the subsidiary’s attribution of net income (loss), the value of such interests was adjusted to the redemption value with a corresponding adjustment to additional paid-in capital; this occurred in the third quarter of 2018, and we recorded an adjustment of $6.0 million for the year ended December 31, 2018. The redemption amount of noncontrolling interests was $24.9 million as of December 31, 2018. In the second quarter of 2019, all of these arrangements were settled in cash for $24.9 million . Revenue recognition We recognize revenue when all five of the following revenue recognition criteria have been satisfied: • contract(s) with customers have been identified; • performance obligations have been identified; • transaction prices have been determined; • transaction prices have been allocated to the performance obligations; and • the performance obligations have been fulfilled by transferring control over the promised services to the customer. The determination of when these criteria are satisfied varies by product or service and is explained in more detail below. Wealth management revenue recognition. Wealth management revenue primarily consists of commission revenue, advisory revenue, asset-based revenue, and transaction and fee revenue. Revenue is recognized upon the transfer of services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those services. Payments received by us in advance of the performance of service are deferred and recognized as revenue when earned. Commissions represent amounts generated by clients’ purchases and sales of securities and investment products. We serve as the registered broker-dealer or insurance agent for those trades. We generate two types of commissions: (1) transaction-based commissions and (2) trailing commissions. Transaction-based commissions are generated on a per-transaction fee and are recognized as revenue on the trade date, which is when our performance obligations have been substantially completed. Trailing commissions are earned by us based on our ongoing account support to clients of our advisors. Trailing commissions are based on a percentage of the current market value of clients’ investment holdings in trail-eligible assets and recognized over the period during which our services are performed. Since trailing commission revenue is generally paid in arrears, we estimate it based on a number of factors, including historical payout ratios, as well as stock market index levels and the amount of trailing commission revenues received in prior periods. These estimates are primarily based on historical information, and there is not significant judgment involved. A substantial portion of commission revenue is ultimately paid to financial advisors. We record an estimate for transaction-based commissions payable based upon the payout rate of the financial advisor generating the accrued commission revenue. We record an estimate for trailing commissions payable based upon historical payout ratios. Such amounts are recorded as “Commissions and advisory fees payable” on the consolidated balance sheets and “Wealth management services cost of revenue” on the consolidated statements of comprehensive income. Advisory revenue includes fees charged to clients in advisory accounts for which we are the registered investment advisor. These fees are based on the value of assets within these advisory accounts. Advisory revenues are deferred and recognized ratably over the period (typically quarterly) in which our performance obligations have been completed. Asset-based revenue primarily includes fees from financial product manufacturer sponsorship programs, cash sweep programs, and other asset-based revenues, primarily including margin revenues, and are recognized ratably over the period in which services are provided. Transaction and fee revenue primarily includes (1) support fees charged to advisors, which are recognized over time as advisory services are provided, (2) fees charged for executing certain transactions in client accounts, which are recognized on a trade-date basis, and (3) other fees related to services provided and other account charges as generally outlined in agreements with financial advisors, clients, and financial institutions, which are recognized as services are performed or as earned, as applicable. The timing of Wealth Management revenue recognition was as follows (in thousands): Years Ended December 31, 2019 2018 Wealth Management Segment Revenues: Recognized Upon Transaction Recognized Over Time Total Recognized Upon Transaction Recognized Over Time Total Commission revenue $ 82,604 $ 108,446 $ 191,050 $ 67,351 $ 96,850 $ 164,201 Advisory revenue — 252,367 252,367 — 164,353 164,353 Asset-based revenue — 48,182 48,182 — 31,456 31,456 Transaction and fee revenue 3,457 12,923 16,380 3,211 9,953 13,164 Total $ 86,061 $ 421,918 $ 507,979 $ 70,562 $ 302,612 $ 373,174 Tax preparation revenue recognition. We generate revenue from the sale of tax preparation digital services, packaged tax preparation software, ancillary services, and multiple element arrangements that may include a combination of these items. Digital revenues include revenues associated with our digital software products sold to customers and businesses primarily for the preparation of individual or business tax returns, and digital revenues are generally recognized when customers and businesses complete and file returns. Digital revenues are recognized net of an allowance for the portion of the returns filed using our refund payment transfer services (as explained below) that we estimate will not be accepted and funded by IRS. Packaged tax preparation software revenues are generated from the sale of our downloadable software products and are recognized when legal title transfers, which is when customers download the software. Ancillary service revenues primarily include fees we charge for refund payment transfer services, audit defense services, and referral and marketing arrangements with third party partners. Refund payment transfer services allow the cost of TaxAct software products to be deducted from a taxpayer’s refund instead of being paid at the time of filing. The fees the customer pays for refund payment transfer services and audit defense services are recognized as revenue at the time of filing. Revenue for our referral and marketing arrangements with third party partners is recognized at a point in time or over time based on the nature of the performance obligation under each arrangement. Certain of our tax preparation software packages marketed towards professional tax preparers contain multiple elements, including a software element and an unlimited e-filing capability element. For these software packages that contain multiple elements, we allocate the total consideration of the package to the two elements. We then recognize revenue for the software element upon download or shipment and recognize revenue for the unlimited filing element over time based on an estimated filing timeline. The impact of multiple element arrangements is not material and only impacts the timing of revenue recognition over the tax filing season, which is primarily concentrated within the first two quarters of each year. The timing of Tax Preparation revenue recognition was as follows (in thousands): Years Ended December 31, 2019 2018 Tax Preparation Segment Revenues: Recognized Upon Transaction Recognized Over Time Total Recognized Upon Transaction Recognized Over Time Total Consumer $ 192,438 $ 2,566 $ 195,004 $ 172,207 $ — $ 172,207 Professional 12,616 2,346 14,962 12,604 2,471 15,075 Total $ 205,054 $ 4,912 $ 209,966 $ 184,811 $ 2,471 $ 187,282 Advertising expenses Costs for advertising are recorded as expense and classified within “Sales and marketing” on the consolidated statements of comprehensive income when the advertisement appears. Advertising expense totaled $54.5 million , $53.3 million , and $51.7 million for the years ended December 31, 2019 , 2018 , and 2017 , respectively. Prepaid advertising costs were $0.3 million at both December 31, 2019 and 2018 . Stock-based compensation We measure stock-based compensation at the grant date based on the fair value of the award and recognize it as expense, net of estimated forfeitures, over the vesting or service period, as applicable, of the stock award using the straight-line method. We recognize stock-based compensation over the vesting period for each separately vesting portion of a share-based award as if they were individual share-based awards. We estimate forfeitures at the time of grant, based upon historical data, and revise those estimates, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Income taxes We account for income taxes under the asset and liability method, under which deferred tax assets, including net operating loss carryforwards, and deferred tax liabilities are determined based on temporary differences between the book and tax bases of assets and liabilities. We periodically evaluate the likelihood of the realization of deferred tax assets and reduce the carrying amount of the deferred tax assets by a valuation allowance to the extent we believe it is more likely than not a portion will not be realized. We consider many factors when assessing the likelihood of future realization of deferred tax assets, including expectations of future taxable income, recent cumulative earnings experience by taxing jurisdiction, and other relevant factors. There is a wide range of possible judgments relating to the valuation of our deferred tax assets. We record liabilities to address uncertain tax positions that have been taken in previously filed tax returns or that are expected to be taken in a future tax return. The determination for required liabilities is based upon an analysis of each individual tax position, taking into consideration whether it is more likely than not that the tax position, based on technical merits, will be sustained upon examination. The tax benefit to be recognized in the financial statements from such a position is measured as the largest amount of benefit that has a greater than 50% cumulative likelihood of being realized upon ultimate settlement with the taxing authority. The difference between the amount recognized and the total tax position is recorded as a liability. The ultimate resolution of these tax positions may be greater or less than the liabilities recorded. We recognize interest and penalties related to uncertain tax positions in interest expense and general and administrative expense, respectively. Concentration of credit risk Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash equivalents, short-term investments, trade accounts receivable, and commissions receivable. These instruments are generally unsecured and uninsured. For cash equivalents, short-term investments, and commissions receivable, we attempt to manage exposure to counterparty credit risk by only entering into agreements with major financial institutions and investment sponsors that are expected to be able to fully perform under the terms of the agreement. Accounts receivable are typically unsecured and are derived from revenues earned from customers primarily located in the United States operating in a variety of geographic areas. We perform ongoing credit evaluations of our customers and maintain allowances for potential credit losses. Geographic revenue information Almost all of our revenue for 2019 , 2018 , and 2017 was generated from customers located in the United States. Recently adopted accounting pronouncements Changes to GAAP are established by the Financial Accounting Standards Board ( “FASB” ) in the form of accounting standards updates ( “ASUs” ) to the FASB’s Accounting Standards Codification ( “ASC” ). We consider the applicability and impact of all recent ASUs. ASUs not listed below were assessed and determined to be either not applicable or are expected to have minimal impact on our consolidated financial position and results of operations. We are currently considering, or have recently adopted, ASUs that impact the following areas: Revenue recognition. In May 2014, the FASB issued guidance codified in ASC 606, Revenue from Contracts with Customers ( “ ASC 606 ” ), which amends the guidance in former ASC 605, Revenue Recognition . The core principle of ASC 606 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services by using a five-step process. ASC 606 became effective on a retrospective basis (either to each reporting period presented or with the cumulative effect of initially applying this guidance recognized at the date of initial application) for annual reporting periods, including interim reporting periods within those annual reporting periods, beginning after December 15, 2017. We adopted ASC 606 on January 1, 2018, utilizing the modified retrospective transition method. Upon adoption, we recognized a $1.8 million cumulative effect as an adjustment to the opening balance of retained earnings and deferred revenues on the consolidated balance sheets. As a result of the adoption of ASC 606, we now recognize certain licensing fees on a net basis, which reduced both transaction and fee revenues and operating expenses by $1.8 million for the year ended December 31, 2018, on the consolidated statements of comprehensive income. Had we not adopted ASC 606, total revenues for the year ended December 31, 2018 would have been $3.3 million higher than reported on the consolidated statements of comprehensive income. Pursuant to the modified retrospective transition method, prior periods were not retrospectively adjusted, and we do not disclose the value of unsatisfied performance obligations for contracts with original expected durations of one year or less. Leases. In February 2016, the FASB issued guidance codified in ASC 842, Leases ( “ASC 842” ), which supersedes the guidance in ASC 840, Leases ( “ASC 840” ). Under ASC 842, lease assets and liabilities resulting from both operating leases and finance leases (formerly known as “capital leases”) are recognized on the balance sheet. Lease liabilities are measured as the present value of unpaid lease payments for operating leases under which we are the lessee, and a corresponding right-of-use ( “ROU” ) asset is recognized for the right to use the leased assets. ASC 842 became effective on a modified retrospective basis for annual reporting periods, including interim reporting periods within those annual reporting periods, beginning after December 15, 2018. Prior comparable periods are presented in accordance with accounting guidance under ASC 840 and were not restated. We adopted ASC 842 on January 1, 2019 for all open leases with a term greater than one year as of the adoption date, using the modified retrospective method of adoption with a cumulative effect adjustment to retained earnings. We elected to utilize several practical expedients that were available under ASC 842, including: (1) the practical expedients under which there is no requirement to reassess lease existence, classification, and initial direct costs; (2) the hindsight practical expedient, under which we used hindsight in determining certain lease terms; (3) the short-term lease expedient, under which we do not apply the balance sheet recognition requirements of ASC 842 to leases with a term of twelve months or less; and (4) the lease component practical expedient, under which we made a policy election to account for the nonlease components of a lease together with the related lease components as a single lease component. The adoption of ASC 842 resulted in $6.6 million of additional operating lease assets, $9.1 million of additional operating lease liabilities, and a $1.6 million adjustment to the opening balance of retained earnings as a result of reevaluating certain of our lease terms as of the adoption date. Upon adoption, we also reclassified $0.9 million of other lease-related balances to reduce the measurement of lease assets. Our lease terms are contractually fixed but may include extension or termination options reasonably assured to be exercised at lease inception, which are included in the recognition of ROU assets and lease liabilities. Our leases do not contain residual value guarantees or material variable lease payments. We do not have any material restrictions or covenants imposed by leases that would impact our ability to pay dividends or cause us to incur additional financial obligations. Our leases are not complex; therefore, there were no significant assumptions or judgments made in applying the requirements of ASC 842, including the determination of whether the contracts contained a lease and the determination of the discount rates for the leases. Stock-based compensation. In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Shared-Based Payment Accounting ( “ASU 2016-09” ). ASU 2016-09 requires that excess tax benefits and deficiencies be recognized as income tax benefit or expense, rather than as additional paid-in capital. In addition, ASU 2016-09 requires that excess tax benefits be recorded in the period that shares vest or settle, regardless of whether the benefit reduces taxes payable in the same period. Cash flows related to excess tax benefits will be included as an operating activity (and no longer classified as a financing activity) in the statement of cash flows. ASU 2016-09 became effective for annual reporting periods, including interim reporting periods within those annual reporting periods, beginning after December 15, 2016. The portion of ASU 2016-09 related to the recognition of excess tax benefits and deficiencies as income tax benefit or expense was effective on a prospective basis, and the portion of ASU 2016-09 related to the timing of excess tax benefit recognition was effective using a modified retrospective transition method with a cumulative-effect adjustment to equity as of the beginning of the period in which ASU 2016-09 was adopted. The cash flow presentation guidance was effective on a retrospective or prospective basis. We implemented ASU 2016-09 on January 1, 2017 and recorded a cumulative-effect adjustment of $51.5 million to credit retained earnings for deferred tax assets related to net operating losses that arose from excess tax benefits, which we have deemed realizable. In addition: • At the time of adoption and on a prospective basis, the primary impact of adoption was the recognition of excess tax benefits and deficiencies, including deferred tax assets related to net operating losses that arose from excess tax benefits that we have deemed realizable in the income tax provision (rather than in additional paid-in capital). This caused income taxes to differ from taxes at the statutory rates for 2017. For the year ended December 31, 2017, we recognized an estimated $20.1 million decrease to the income tax provision, which resulted in a $20.1 million increase to income from continuing operations and net income attributable to Blucora, a $0.45 increase to basic earnings per share, and a $0.43 increase to diluted earnings per share. • We applied the cash flow presentation guidance on a retrospective basis, restating the consolidated statements of cash flows to present excess tax benefits as an operating activity (rather than a financing activity). For the year ended December 31, 2017 , that resulted in an increase to cash provided by operating activities from continuing operations of $16.0 million and a corresponding decrease to cash used by financing activities from continuing operations. The restatement had no impact on total cash flows for the period presented. ASU 2016-09 also clarifies that payments made to tax authorities on an employee’s behalf for withheld shares should be presented as a financing activity in the statement of cash flows, allows the repurchase of more of an employee’s shares for tax withholding purposes without triggering liability accounting, and provides an accounting policy election to account for forfeitures as they occur. The cash flow presentation requirements for payments made to tax authorities on an employee’s behalf had no impact to any periods presented, since such cash flows historically have been presented as a financing activity. We are not planning to change tax withholdings and will continue to estimate forfeitures in determining the amount of compensation cost to be recognized in each period. Accounting pronouncements to be adopted in future periods Measurement of Credit Losses. In June 2016, the FASB issued ASU 2016-03, Measurement of Credit Losses on Financial Statements ( “ ASU 2016-03 ” ) that requires companies to measure credit losses utilizing a methodology that reflects expected credit losses and requires a consideration of a broader range of reasonable and supportable information to inform credit loss estimates. ASU 2016-03 is effective for fiscal years beginning after December 15, 2019, including those interim periods within those fiscal years. We are currently assessing the impact of adopting ASU 2016-03, but based on a preliminary assessment, we do not expect the adoption of this guidance to have a material impact on our consolidated financial statements and related disclosures. |
