BCOR - Earnings call transcript Q3 2020

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Operator

Ladies and gentlemen, thank you for standing by. And welcome to the Blucora Third Quarter Conference Call. At this time all participants line is in listen-only mode. After the speaker's presentation there will be a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to your speaker today, Bill Michalek, Vice President of Investor Relations. you. Thank sir. ahead go Please

Bill Michalek

release you, and Earnings had Third XXXX our to opportunity welcome, Call. By everyone, earnings of Conference copy have review Blucora's supplemental now, information. to Quarter a Thank and you the should

these not at Financial available website on they you've Officer; Chief joined I'm today Relations If Walters, documents, of and Chief Mehlman, Investor Executive section are Officer. reviewed yet our blucora.com. the by Chris Marc

statements that we only the based begin, date. forward-looking let discussion Before see as speak current on everyone as and today's currently remind the we environment contains me it of

As our except from include assume and our required forms our other reports XX-K, results other information our actual materially Please such, update forward-looking expectations. statements, and they to XX-Q the We refer and uncertainties, events factors. and more specific risk current press no law. for differ including risks on to filings, could obligation as release and SEC by

and measures GAAP both discuss non-GAAP will today. financial We

Our full reconciliations earnings earning it Chris. include to non-GAAP me measure financial measure. that, blucora.com each the let and available discussed on to With release, hand presentation applicable of and GAAP are over supplemental nearest information

Chris Walters

that I than and good our and to will shortly. number Marc incremental cover on Thanks, Bill, third of showed am a came pleased results morning, expected everyone. quarter higher report improvement in metrics that

morning tirelessly position perspective and a acquisition up also our proud be both success closed HKFS have we a growing the for their who adding I'm the want with the their clients to to And to tax we this of we required an on TaxAct passion of and best it in executing We're regularly I growth. that have they this business. place. in continue our financial us through that and impressed XXXX is position very company Having to In us commitment made since employees of success. for setting makes year work to professionals margin our their future and on with addition, business off them management season. in More harder an historically overview strategy professionals position to shortened fast joining, executing for start moment. have by our progress a focused uncertain wealth high for met work for time. tax to even financial can in I'll ourselves worked see from all on put

As year progress made discussed product. our last on significant we

our and the structure and were team we hybrid to technology, core have most and be point well offering pages our rate, and are being we we have optimized media challenging assisted which as customers. several at emphasis for not However, our continuing the as of upcoming strong to between that marketing position offering messaging our who launching things; our with ensuring approach for on the available focused marketing by to for having start intersection last season challenged an users including To season critical on start assisted are landing to marketing tax product an partners, interested prove enhance may out of on a product year are entire all users prepare offering and areas that all interest. capabilities,

in for coverage effectively. we pro of be software will targeted testing that including ways more Improving Our tax and situations improved onboarding gives confidence tax last to over couple our the us experience. this able an years execute

accomplish their a completing incremental quarter busy and team their for amount processes the including changes advisory business. are Global technology the to First off continued financial experiences. that the professionals in improve are however, teams. deal systems and significant future and customer customers. model which many tracking HKFS early valued last service All new wealth in improved experiences experience been to has in financial a Consolidating stages a focused years. We so us a start We is have new that financial making to change completion aspects experience drive are pricing. the with end of services. progress on coming is to both I'll new for the completed we primarily shift on of combination better adding a with on great enabling and two is that of accomplish to we trying with including working BI and financial believe for in will are multiple We of and regional year and our optimized of executing professional consistent better regulation customers, their to a quarter growth concert. improving strategy increasing professionals deal financial an shortened and management to will this pricing progress over the a stability fronts integrate with The all talented and began for in I'm with and and of platform our now number service of to service team. the our a advisory pleased management. programs the both us move the improved businesses. clearing the There well professionals. be change solid the has for product marketing focused levels, our been of additions technology our transitioned been making, season business the core great to out acquisition advisory a acquisition for with fronts sustainable the us integration season further It rolling the plan a of and on enable Rolling change and to on we new to This architect next make product professionals refining our progress what out focused need

band improved three new accounting with a see to the affiliated tax our approach HKFS in distribution a decrease processing of which Upgrading Adding to during statements. practices new and expect also the professionals financial quarter. times. paper be large recruiting XX We has affiliated operational

and improving financial efforts focus on and integrations and show improved efficiency processes and are confident the strategy their compelling will We to coming and by our management We First position for the time to Global That our the performance, professionals have foundation plan and to our do completing providing professional HKFS. the differentiated in is solidify said to scalability, impact. to market service aligning improve systems operational These long-term work growth. and tools year tax-focused customers. some right we wealth of maximizing financial take technology organic for in performance

assets. years. Over deliver we will combination that growth will future of departures course year risk of organic coming share in our the financial increasing professional the us put efforts a actions of expect in decreasing position asset advisory anticipate lead an to from stronger we of The and which to

able Let's XX the now professionals coming after the years. with been of extension company been to basis both equivalent on the growth turn by have delivering year. start impacts CEO It's the role. customers External point been the that in making sides year the for rate large this season financial a pandemic had whole. Blucora falling forces a in enable we've financial business team adversely as significant six closely of challenging interest to our sustained challenging our in I'm tax repositioning of keep my Near-term of and and including safe to and proud cuts. this results the our impacted environment while progress events global start of on

leadership the of and to customers our company didn't Blucora these most growth notably had McKay. clarity organization for fortunate structure challenging value we need CEO realizing role However, A goals and the more adjusted strong been and operations across under under and the taking drive challenges sustainable businesses for alignment across each We've one consolidating Campbell and value establishing are ownership management areas, strategies across the important by flow including toward potentially across to the became and A aligned organization, of under profitable common a demand high down businesses. lack cultural business times. of professionals, priorities Todd between tested. units meaningfully synergies leadership efforts sustainable member, team provide Skill resulting these and employees structure including number to for challenges growth to Curtis for leader business challenges the cash with and nine priorities individual software a strategies for wealth necessary the shifted our the ago financial actions within We've efforts number I investment clearer into addressed every after not our businesses in our following in businesses. ongoing have positive during an months performance. gaps stepped technology two and in the the needed that combining

believe We required of a common our our We one our team to many teams roles to technology number with deliver to We and sense members added the skill the CIO members we initiative place our We forward. of also new purpose. talented and now separated a rolled out right going in have team sets. to ensure the team CTO bolster expanded culture of efforts.

which highest months the benefit TaxAct. more the clarity We technology in We've approaches our early XX these synergies significant meet the effectively be the in efforts efforts. in unit we leadership professionals, professionals were tools terms value things; the alignment to by needs teams product objectives year financial about testing satisfaction. few priority, of financial level our the make are and improvement our Blucora in and material has committed leveraging coming and in increased improving expect employees. we process While productive to potential customers to It needed overall engagement employee will business see more investment on the from technology to a before and from shown of of at and and on

now the area year. users marketing a financial in time financial early HKFS out The have second engaging of middle or referral to partners. approach acquire into before is final Pro scale. converting helping TaxAct professionals sophistication more and our The the professionals pros and into plan customers. financial and tax We're or tax stages refine is professionals test next of in limited roll Most Avantax

to professionals resulting Our flows. financial our customer higher help them TaxAct drive leverage acquisition marketing within organization new can in the asset capabilities

offering markets. wealth service the and the offerings the We has now and front software We expect and Blucora. our in year. our more of early to to XXXX a of the half position growing tax-focused begin I'm opportunity second about large company than in ever service believe management define in test enthusiastic in compelling

significant organic growth very challenging position the have the in deliver best made to years. in progress company of to coming environment We midst sustained a the

and performance place tax full year focused the turn to With deliver in to to We our execution team over on I'll promise. it have QX and Marc outlooks. XXXX an season review that

Marc Mehlman

the Thank $XX.X as for full acquisition well year of on X included results of follows. and which a on for and our is preparation. morning like you end the the or our of provide I'd Total consolidated good costs revenue HKFS third includes additional XXXX guidance On some our towards were to updated as quarter therefore quarter. the share results HKFS July of million this integration per quarter the with A preliminary acquisition. primarily loss outlook as outlook everyone. results Chris to results acquisition which of third of and basis full GAAP closing has third detail year Starting closed quarter in and upcoming net in tax our related been $XX.X the million for range. million upper $X.XX $XXX.X

GAAP this. offer forecasted to than to higher more expense target EPS due and tax like GAAP on were below ranges our net and loss a Our perspective both I'd

operations adjusted Our can basis reported greatly in estimates by utilization believe financial rate when changes we viewed figure rate results. Small income provides GAAP more GAAP due profitability part with be income as why tax throughout our larger caused volatile in non-GAAP of to a year. measures which we on to supplement net complete investors understanding swings of NOL tax as prevent one is reasons which an pre-tax movements underlying at the are a the the which in variability also especially impacted is our of intraperiod the

per of was Now target $XX high range. moving $XX.X both or of above end $X.XX was Non-GAAP share income million field]. end net our high target the on EBITDA also Adjusted the above our to million range. [that

income was due flow bit a including just million our to from October Segment to end for now peak forecast. in in revenue. to TaxAct came tax also above third $XX.X million was range Turning range. target revenue ancillary sales our driven $XX.X the better that the XX target preparation. better deadline This by was overall of high through product the performance leading the quarter operating our than up third above

to on management. Moving wealth

the Third included target driven revenue represents quarter million was to wealth to XX% a a business transaction which including in midpoint factors advisory right about was quarter of million of revenue. addition our XX% net of XX% growth $XXX.X inflows is a revenue of $X.X number and HKFS. including the at also within an total by management last about revenue related by market increase Relative increase revenue trailing and range in HKFS, the This additional number XX% that of driven increase in and revenue. improvement, improvement

latter primarily was in management contributed decline X% by based ones. last HKFS decrease $X.X revenue relative limited commission revenue which new person factors tax difficult On X%. both to driven a extended mentioned year-over-year quarter. attracting to The This existing total well of to revenue driven was a wealth transaction and addition of sweep business grew as in the factors XX% again we These meet quarter. by Excluding quarter million this customers include ability down a with revenue basis XX% development the as season revenue. activities in making drive the last and it

client XX% up $XX.X This assets which Excluding entered to billion. Key-based $XX.X above revenue includes management. for a of from Net at were points year about inflows quarter watermark. at our as $XX hitting basis in new and increased at a outflows $XXX inflows of XXX segment also Wealth $XXX about approximately million. We advisory the about advisory HKFS tax improvement band HKFS. of HKFS tax in were total declined revenue $XXX operating million excluding income XX% outflow the million assets addition million quarter's net about of of due and expense into total $XX.X to up boosted of target by by consists same client to assets even year-over-year is partially saw last million of the result from XX.X% assets in came end of a advisory year-over-year $X primarily an last $XXX high assets offset proven of record assets demand about outflows $X.X advisory $XXX range inflow billion Total at net the consisting HKFS. from percentage the high client year-over-year. assets which million represents HKFS XX% at billion about quarter a million management million

at million HKFS Finally billion, million $X.X client on I billing to of quarter $X a represents basis. in mentioned margin XX% More contributed HKFS in are assets wealth quarter. as standalone $XXX ended million $X.X net about an management earlier revenue of to structure. contributed client million the from of inflows asset advisory about than $X.X about the with during HKFS XX% QX in up segment which a and management Total wealth income about operating

served third than end of As retirement $X.X clients up RIA CPA and in unallocated of range. came quarter X,XXX over expenses plan corporate of about on the Finishing participants. at the the our firms XX,XXX quarter slightly million XX better performance midpoint HKFS

former $X.X During charge we exiting the the transaction to costs First first the HKFS. impairment had building. to related quarter $X.X costs $X.X headquarters a integration related and integration in acquisition million Global million and to million of related in about global

which line up on million Finally upfront ending balances the payments XXXX $XX potentially HKFS certain June potential XXXX and up based to upon to highlighted will of quarter included value in evaluation calculating performance and in asset will totaled quarterly could for income. out two until of non-GAAP value change contingent understand in which earn P&L is value be net are the liability and measurement transaction is the change acquisition uncertainty to down be net this on of contingent add second recorded metrics. June and consideration from in paid this This fair important long-term estimated other liabilities This will and related our be million $XXX each in excluded and stemmed our liabilities. GAAP the and sheet to the income. estimating operating of current renegotiation potential reevaluated other be earn in of consideration fair million. out purposes income. price earn contingent will balance purchase that $XXX The the date the of a It our fair reflected The

in resulted important what includes $X an the the note business lower of metrics quarter the We million. very for discount million basis. next in achievement $XX.X of business. hope a perform which earn to undiscounted with on third to payout a earn valuation factors. as of out best declined practice of the For the which and out positive years two the It's would number that results This the fair evaluation is to in continues the methodology assumptions a of over than aligns gain market-based bring out in value result much the growth estimated HKFS favorably this liability earn would

guidance provide incorporate out. pay will we best we thinking non-GAAP into two expect from next As latest to do years over ultimately our what expectations we our to resulting the

fees of $XXX.X with $XXX ended million of fund with on We cash to the million. the HKFS quarter remaining equivalents our $XXX of At the the Turning existing quarter liquidity. now credit start the term loan million million our increase connection We add-on with HKFS the facility. acquisition entered into sheet. and loan purchase was remainder to in proceeds to balance currently of of of $XXX price a acquisition the the debt net and we the of net term proceeds used and the the cash approximately

at X.X prior compared of reported in times quarter quarter. X.X to times net the was Our end leverage the the ratio

will forward be look perspective prudent. to from we we allocation a As continue capital

activity plans any repurchase not engaged We so. share have no in and to have do near-term

acquisition pay organic the debt. for from and our aside opportunities priorities support unique With down will HKFS completed to deployment ongoing cash growth be

leverage be long-term that let's turn remains XXXX. to updated our to times. outlook goal net With for full Our year below X

and $XXX we TaxAct of full For $XXX and of million revenue million segment the $XX.X million expect million. $XX.X year income between to operating

million. full wealth and again expect including X income yearend partial HKFS business million our full million. million year to $XXX income to $XX.X million. $XXX.X $XXX.X $XXX.X of $X.XX of or million for period million $XX.X between diluted and which to management year to per a to of of revenue million and of GAAP share. $XX.X Adjusted $XX $X.XX year This between million revenue million EBITDA corporate $XXX $XX For to to translates to per operating to $X.XX $XX.X July and the million unallocated between $XX.X $XXX.X net consolidated we $X.XX loss expenses $XX.X to Non-GAAP outlook million Blucora segment of attributable of includes diluted or be million with net HKFS million. through share

full $X year share. a impacts you such have non-GAAP basis by adjusted XXXX also per some held that readiness. including level and to into of improving opportunities our quarter of longer the So forecast at and midpoint by related investments expenses with were XXXX. for we in relative confidence third discrete more EBITDA revised experience upwardly COVID improving in results spend XXXX spend are for beyond overall reinvest business target $X.XX managing We at as in we million The outlook off accelerating now the these prior likely tax in relates EPS the revenue results, as we On until In those sweep consideration takes our second performance some business. on on The of part season the plan in performance. increased. that target results to results our discretionary net ahead to on that had cost certain season as based new improved will the be extended revenue estimates see targets persist the the quarter change midpoint you will decline which can corporate of the at lasting in of year TaxAct have our and our the in

the has it year of season. first a to of provide customary time become tax preliminary this at outlook upcoming half the for Finally

year's the it was it year outlook this that Given the provide for for quarter things guidance. as may into extended tax helpful that to to relates a entire feel I'll note preliminary few season be this third TaxAct. A we more

we've enhancements significant site improved. units past unique plan in head satisfaction These Our give this factors next improvements a in as implemented marketing enhance plan season. in The and to product a this as and hybrid a commercial retention product in was peak improvement The version our of offering the consumer to earlier others significant launch second customer confidence upcoming we showed significantly conversion, prior season decline discussed season past seasons in during visits team continued we among us seen marketing January. for and assisted season. and improvements showed into

normal start single price-based also Incorporating TaxAct fact transition unit However, time season in we as transition yields frame a a we and less to our tax full to and growth guiding were targeting year XXXX. as low that factors as assuming end we longer we year preliminarily these entering are to well dates grow into a for are digits from This growth. move typical the proof-based and over relative revenue certainty.

with lower prior minimum of maintaining of than healthy additional marketing higher XXXX. our next rebound $XX year of a a income spend, operating income segment consistent terms last versus although include million does operating preliminary historical we guidance expect tax commentary expect In level season. This a of segment and than

unit this if drive dial strategy not marketing We getting believe be spend in it returns high confidence as we we are a However, certainly back of positive with we to line on desired this our monetized the outlook hybrid can improvement we initiatives set our of marketing stage strong product improvements driving and while assisted anticipate capability exciting growth. sustainable grouped long-term together are for will model in and believe in Launch When the these all a our growth. quality. performance.

with that role has a has to outside early been XXXX the of new wanted Bill Blucora over make known Michalek operator I the the Now to accepted it you company. before I since turn who to

earnings thank to his many, with and last this his such for will As be work like us. I'd to Bill fine Blucora. call sincerely many contributions

wish We him and him in new will and endeavor. success this well miss every

Another the member we of on on in many former America relations has years experience Littrell working contact website. leader. remarks. Cash our our interim team is who an for been in will while search a IR This new stepping our basis Avantax full-time information Dee of has and with be investor concludes prepared His

Q&A. to We will call now the turn the Operator? operator over for

Operator

[Operator the Instructions] first Blair. line from comes Our question of Chris Shutler from William

line is open. Your now

Chris Shutler

everyone, Hi morning. good

want I First TaxAct. to ask on

confidence growth revenue and Just single-digit unit in low monetize your XXXX expectation in assumed your I guess in what's for growth?

Chris Walters

We any that. breakout haven't breakdown provide done or more granular any into

sure provide I'm more detail. not can So we

doing of points in investments terms confidence product level our in the season the in the last things areas right of which year. there where in we're was In our off friction all are the focusing

have gives more right we that assisted our have hybrid well team broadly our who things also messaging it of the done media consumers We a all confidence of combination and growth. as launching making all that want the it our those great we as combination those offering unit and may we'll available partners, paid us deal the think our ensuring approach, marketing, things got to

Chris Shutler

Got it.

to point what noted. to leader in as TaxAct competitors? main obsession for Okay and key the of this pricing Chris market you relative your recent At narrowed as gap has of years the point you've TaxAct would then kind versus considerably value

Chris Walters

on compelling as customer satisfaction of so which year-over-year in that some what terms noted focus of we really meaningfully around just the think make we that latch improvements the it's we in enhancements to of demonstrated and we referenced Marc of with of our can things. results we've we terms continue a with so last and real increasing think to. product ease satisfaction Well, product and from use customers combination use something ease on in that's was kind quarter of shared One really

we with that also with the positioning testing that also and brands year align brands, consumer think which TaxAct or are are found in great have they through who features think to challenger actually there value the consumers ultimately right will they We and there respond positioning will differentiated that the value segments we some many them. want of market we out to with favorably right that work very then we on launched consumers last on place with great there

So a example an plan. tax would be of that

experience consumers of user be they opportunity the off we at to kinds to take in the should actions the understand best the So of year-over-year combination compelling of coupled year segments consumer interested finally to right with the connects build actually that TaxAct give all the give rating consumers with more differentiated us are that are think think for we in positioning favorably three we season the intuitive and really from. and prepared that some features simple end the the so experience position a a coming

Chris Shutler

wealth in a lower business. operating number expected. came in The just wealth than expense then And the couple Great. on

wrong only was X up HKFS million think X think coming around I it and despite up if added into it but me think the fold I was which correct I'm I sequentially million.

that expense? how reading level sustainable correctly So first am if I is of the current and so

Chris Walters

that? want Hey take Marc, to you

Marc Mehlman

of prudent number macroeconomic a in we've are where we things of the fact placed light pictures perspective. a There from that need the just position done management certain Sure. an that to on expense be

We we can with we maintain plan profile forward forward. going revenue an aligns growth to the look expect to on that expense continue how

are revenue So the will is with numbers you expected at in yes correctly. but the manage viewing going it continue to way prudent. I continue to be line would We'll expense growth forward look

Chris Shutler

Marc notably to areas any can there where point were down Are expenses you sequentially?

Marc Mehlman

That's folks at from Well, year home as that past. conferences dramatic professionals. years as as it you can imagine our with are financial our this is year staying relates down quite thing different this T&E to is another

possible to the think people will people start for next out time come traveling and how more it year plays is I together. extent tell, to that

than of the with to just factors you typical. is do has expenses I because those face-to-face but up year it that relative a that sorts really those would with go are see being to think year different this interaction controllable do associated value we

Chris Shutler

when Okay. guidance assumes And of September markets of then lastly it XX? as the just as

Marc Mehlman

correct. That's

Chris Shutler

very Okay. much. Thanks

Operator

Instructions] the next comes Dan Kurnos [Operator of from from question line Benchmark. Our

now is line Your open. Benchmark. from Dan Kurnos

Your now line is open.

comes Cuddy from line JPMorgan. question from next of Our the Will

is line now open. Your

Will Cuddy

Thanks questions. for taking Good morning. my

Chris Walters

Sure.

Will Cuddy

the tax on that on XXXX. related $XX it in Starting EBITDA there next of guide was indicated for call spending our year, was COVID-XX million last

the would like a next year is trying the next understand and year? be spend. a unusual would which it guide adding function nature COVID growth to I back margins trying EBITDA next year it the that Is I'm declining? conservativeness that So to reflection that due with be to of am for of for declining this margins is piece of essentially in the normalized excluding back planning greater year seems would revenue imply and why marketing

Chris Walters

to you Marc, Sure. it? do want take

Marc Mehlman

better for keeping did XXXX. the COVID which spend Thanks year about with from million alone a the last last to related quarter, we that and low rebound is year at Which low the with that we what year question would consistent range we would shared than $XX next our income Will, are indeed XXs. this guide million $XX it significant XX% Sure. will segment be least outlook that be

margin believe are opportunities on on drive year. ‘XX have we ahead do next of year in As is would spend marketing mentioned the that year we range I'll the a that call, what tax mentioned expectation There our hold unfolds. frame really performance which on sharing many that these to over really the the excess the ability the statement around forward that that right the really the we profit. for prepared that's I the and actions transition and or provided confidence based exciting next as to becomes growth throttle remarks results the I our time during guidance take do the call and and look guidance made on year be incremental more season we question driver of so the and is

Will Cuddy

Okay. Thanks Marc.

take you're Turning Avantax will to driving into continued the do think you to closer that translate do what breakeven? you long Avantax, flows and how for outflows making getting now is at the it think investments to

Chris Walters

Sure.

has professionals couple been So amount the of during very significant. as remarks, the our years for we're mentioned change financial over prepared last of the

improve service financial customers. and fronts year So and for better technology need the including multiple improved levels we professionals to on experience their coming in

And the decrease. for we're a think will a management make risk the We've to reiterate and that of position added we're actions growth. improvements, a refining operational so based service as approach think I team. a we're times ultimately see We've long-term new and model. actually or our regulation with consolidated outflows taking regional departures those actually in rolling us and I'll processing we we we'll out programs that product continue BI, pricing advisory improvements upgrading and line

positive all so are the and in impact to they'll have believe And these flight in we year us ultimately this. turn of a things and enable coming

Will Cuddy

Okay.

guess to investments these or of and fruition of to a a seeing talk as fair Is about year to come about it's like this, then I to actually so think benefit. So it? that some have having fair the way

Chris Walters

fair think it. about That's we

Will Cuddy

my last the Then Great. question on debt.

be cash how been with the of this So paid in historically to we it flow align with that we consistent past? pay expect first has for year debt thinking paid debt it has down the about similarly Blucora year can down in TaxAct. down the from Should half

Chris Walters

on want comment you Marc, to it?

Marc Mehlman

Sure.

have So still we as timing to season investing relates of the paying [tax] we're in going debt into Further uncertainty it out to fully little are that of going with as going front X continued balance as opportunities to on gives to find that us down down we put end able the well. the play and in us of organic growth. balance any sort between as of more April January that confidence to that the on next it's be one enter begin is year areas pay tax we historically also right priority a to growth to expected drive debt but that continue Should bit XX. there's to

just in return of really get comes make it terms historical bit we to So normalcy January, think sure let's to norms chance our that pay some debt better of there's I a of to let's down. and we seeing down can,

Will Cuddy

right. Thank questions. for Got you Thank it. taking All you. my

Chris Walters

Sure.

Operator

further turn closing call over like I'm to [Operator questions. remarks. to this time the management no Instructions] I At showing back would for

Chris Walters

quarter. We'll all us interest next today for Great. and your in to speak Thank you you joining for Blucora.

Operator

this Thank call. Ladies concludes for participating. you and conference today's gentlemen

now disconnect. may You

Avantax (AVTA) 9 Nov 202020 Q3 Earnings call transcript