Document

0001068875-16-000249.txt : 20161027 0001068875-16-000249.hdr.sgml : 20161027 20161027063111 ACCESSION NUMBER: 0001068875-16-000249 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20161027 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20161027 DATE AS OF CHANGE: 20161027 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BLUCORA, INC. CENTRAL INDEX KEY: 0001068875 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROCESSING & DATA PREPARATION [7374] IRS NUMBER: 911718107 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-25131 FILM NUMBER: 161953832 BUSINESS ADDRESS: STREET 1: 10900 NE 8TH STREET STREET 2: SUITE 800 CITY: BELLEVUE STATE: WA ZIP: 98004 BUSINESS PHONE: 4258821602 MAIL ADDRESS: STREET 1: 10900 NE 8TH STREET STREET 2: SUITE 800 CITY: BELLEVUE STATE: WA ZIP: 98004 FORMER COMPANY: FORMER CONFORMED NAME: INFOSPACE INC DATE OF NAME CHANGE: 20000428 FORMER COMPANY: FORMER CONFORMED NAME: INFOSPACE COM INC DATE OF NAME CHANGE: 19980824 8-K 1 bcor8-kq32016earningsrelea.htm 8-K Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

October 27, 2016

Date of Report

(Date of earliest event reported)

BLUCORA, INC.

(Exact name of registrant as specified in its charter)



DELAWARE	000-25131	91-1718107
(State or other jurisdiction of incorporation)	(Commission File Number)	(I.R.S. Employer Identification No.)

10900 NE 8th Street, Suite 800

Bellevue, Washington 98004

(Address of principal executive offices)

(425) 201-6100

Registrant’s telephone number, including area code

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:



o	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)



o	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)



o	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))



o	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02 RESULTS OF OPERATIONS AND FINANCIAL CONDITION

On October 27, 2016, Blucora announced its financial results for the quarter ended September 30, 2016. Copies of the press release and a supplemental investor presentation are furnished to, but not filed with, the Commission as Exhibits 99.1 and 99.2 hereto.

Item 9.01 FINANCIAL STATEMENTS AND EXHIBITS



99.1	Press release dated	October 27, 2016
99.2	Investor presentation dated	October 27, 2016

-2-

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.

	By	/s/ Eric M. Emans
		Eric M. Emans
		Chief Financial Officer

		October 27, 2016

-3-

EXHIBIT INDEX



Exhibit No	Description

99.1	Press release dated	October 27, 2016
99.2	Investor presentation dated	October 27, 2016

-4-

EX-99.1 2 ex-991earningsreleaseq32016.htm EXHIBIT 99.1 Exhibit

Exhibit 99.1

Blucora Announces Third Quarter 2016 Results

BELLEVUE, WA — (GLOBE NEWSWIRE) — October 27, 2016 — Blucora, Inc. (NASDAQ: BCOR), a leading provider of technology-enabled financial solutions to consumers, small businesses and tax professionals, today announced financial results for the third quarter ended September 30, 2016.

Third Quarter Highlights and Recent Developments


•	Exceeded $10.0 billion in assets under management up 9 percent in the third quarter versus prior year; third quarter net flows of $132.0 million marks best quarter of net flows since first quarter 2015


•	Achieved better than expected performance from advisor-driven revenue; transaction revenue up 18 percent sequentially


•	Closed the sale of Infospace to OpenMail for $45.2 million


•	Repaid $45.0 million of debt, bringing Blucora’s total debt reduction for the nine months ended September 30, 2016 to $133.4 million


•	Strengthened executive team with appointment of Mathieu Stevenson as Chief Marketing Officer and Pamela Turay as Chief Human Resources Officer

John Clendening, president and chief executive officer of Blucora, noted that “during the third quarter, we continued to execute the strategic initiatives we outlined last quarter, including successfully divesting the Infospace business and continuing to de-lever. We are making strong progress on our transformation strategy as we organize around our new operating model and solidify our position as a technology-enabled financial solutions company,” said Clendening. “We are taking the actions necessary to maximize the performance of our businesses, and are seeing positive results from these efforts. We are committed to investing in our people, our capability, and our technology to enable us to capture the substantial growth opportunities ahead in both the HD Vest and TaxAct businesses,” he explained.

The following presentation includes pro forma financial information and HD Vest. In addition, it excludes the Search and Content and E-Commerce segments which have been classified as discontinued operations for all periods presented. The Company believes that this presentation most accurately reflects the financial performance of the Company on a go-forward basis.

Summary Financial Performance: Q3 2016

($ in millions except per share amounts)



	Q3			Q3
	2016			2015			Change
	As reported			Pro forma
Revenue	$	83.2		$	82.9		—	%
Wealth Management	$	80.1		$	80.0		—	%
Tax Preparation	$	3.1		$	2.9		10	%
Segment Income	$	7.2		$	8.9		(19	)%
Wealth Management	$	11.6		$	11.5		1	%
Tax Preparation	$	(4.4	)	$	(2.5	)	72	%
Unallocated Corporate Operating Expenses	$	4.9		$	4.4		11	%
GAAP:
Operating Loss	$	(10.5	)	$	(10.3	)	2	%
Net Loss Attributable to Blucora, Inc.	$	(54.1	)	$	(11.3	)	381	%
Diluted Net Loss Per Share Attributable to Blucora, Inc.	$	(1.30	)	$	(0.27	)	381	%
Non-GAAP:
Adjusted EBITDA	$	2.3		$	4.5		(48	)%
Net Loss	$	(10.1	)	$	(7.0	)	46	%
Diluted Net Loss Per Share	$	(0.24	)	$	(0.17	)	41	%
See reconciliations of as reported and pro forma non-GAAP to GAAP measures in tables below.

Company Restructuring

“As we continue to implement our new ‘One Company’ operating model,” Clendening stated, “we plan to move our corporate headquarters from Bellevue, WA to Irving, TX by June 2017. We’ve moved from our prior holding company model to an

operating company model, in which the corporate team adds value by directly contributing to business unit results. The best way to foster this is by co-locating the corporate team with one of the operating units. In addition to increasing impact, this approach will also enable us to maximize cost savings. Together, these steps will facilitate value creation for our shareholders.”

Eric Emans, Chief Financial Officer and Treasurer, does not intend to move to the Irving office. Accordingly, Blucora has retained Heidrick & Struggles, a leading executive search firm, to help identify and recruit candidates. Eric remains fully committed to the company and it’s shareholders, and plans to stay on until long after a successor has been named, well into 2017, in order to ensure a smooth transition. Clendening added, “Eric has been a terrific partner and I'm delighted that he has agreed to remain actively involved in the management of the company through this transition.”

The Company expects to incur cash restructuring charges of $5.6 million to $8.7 million that primarily relate to employee severance costs and costs associated with the exit of our Bellevue facility. We also expect to record non-cash restructuring charges of $1.9 million to $2.6 million for total restructuring charges of $7.5 million to $11.3 million. Additionally, we expect to incur transition-related costs of $3.0 million to $4.0 million related to the transitioning of roles from Bellevue, WA to Irving, TX primarily related to overlap in staffing and recruiting search fees. The majority of these costs will be recorded over the next three quarters.

Fourth Quarter and Full Year 2016 Outlook

For the fourth quarter of 2016, the Company expects revenues to be between $82.2 million and $85.5 million, GAAP loss from continuing operations to be between $17.7 million and $15.6 million, or $(0.42) to $(0.37) per diluted share, Adjusted EBITDA to be between $(1.5) million and $0.8 million, and Non-GAAP loss from continuing operations to be between $12.7 million and $9.7 million, or $(0.30) to $(0.23) per diluted share.

For the full year 2016, the Company expects revenues to be between $451.3 million and $454.6 million, GAAP loss from continuing operations to be between $5.2 million and $3.1 million, or $(0.13) to $(0.07) per diluted share, Adjusted EBITDA to be between $89.9 million and $92.2 million, and Non-GAAP income from continuing operations to be between $39.9 million and $42.9 million, or $0.93 to $1.00 per diluted share.

Conference Call and Webcast

A conference call and live webcast will be held today at 5:30 a.m. Pacific Time / 8:30 a.m. Eastern Time during which the Company will further discuss third quarter results and its outlook for the fourth quarter of 2016. We have also provided supplemental financial information to our results that can be accessed in the Investor Relations section of the Blucora corporate website at http://www.blucora.com and filed with the SEC on Form 8-K. A replay of the call and management's prepared remarks will also be available on our website.

About Blucora®

Blucora, Inc. (NASDAQ: BCOR) is a leading provider of technology-enabled financial solutions to consumers, small businesses and tax professionals. Our products and services in tax preparation and wealth management, through TaxAct and HD Vest, help consumers manage their financial lives. TaxAct is an affordable digital tax preparation solution for individuals, business owners and tax professionals. HD Vest Financial Services^®supports an independent network of tax professionals who provide comprehensive financial planning solutions. For more information on Blucora or its businesses, please visit www.blucora.com.

Source: Blucora

Blucora Contact:

Stacy Ybarra, 425-709-8127

stacy.ybarra@blucora.com

This announcement contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Actual results may differ significantly from management’s expectations due to various risks and uncertainties including, but not limited to: general economic, industry, and market sector conditions; the effect of current, pending and future legislation, regulation and regulatory actions, including the DOL rule; the availability of products to sell; the timing and extent of market acceptance of developed products and services and related costs; our dependence on companies to distribute our products and services; the successful execution of the Company’s strategic initiatives, technology enhancements, operating plans, and marketing strategies; the condition of our cash investments; and the Company’s ability to control operating risks, information technology system risks and cybersecurity risks. A more detailed description of these and certain other factors that could affect actual results is included in Blucora, Inc.’s most recent Quarterly Report on Form 10-Q and subsequent reports filed with or furnished to the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this release. Blucora, Inc. undertakes no obligation to update any forward-looking statements to reflect new information, events, or circumstances after the date of this release or to reflect the occurrence of unanticipated events.

Blucora, Inc.

Preliminary Condensed Consolidated Statements of Operations

(Unaudited)

(Amounts in thousands, except per share data)



	Three months ended September 30,						Nine months ended September 30,
	2016			2015			2016			2015
Revenue:
Wealth management services revenue	$	80,088		$	—		$	233,496		$	—
Tax preparation services revenue	3,149			2,875			135,614			114,843
Total revenue	83,237			2,875			369,110			114,843
Operating expenses:
Cost of revenue:
Wealth management services cost of revenue	54,921			—			158,213			—
Tax preparation services cost of revenue	1,319			1,170			6,549			4,680
Amortization of acquired technology	49			1,911			765			5,636
Total cost of revenue ⁽¹⁾	56,289			3,081			165,527			10,316
Engineering and technology ⁽¹⁾	4,588			1,251			12,842			3,471
Sales and marketing⁽¹⁾	11,965			2,113			75,715			42,824
General and administrative⁽¹⁾	11,638			8,895			35,899			23,694
Depreciation	968			394			2,906			1,101
Amortization of other acquired intangible assets	8,297			3,195			24,929			9,566
Total operating expenses	93,745			18,929			317,818			90,972
Operating income (loss)	(10,508		)	(16,054		)	51,292			23,871
Other loss, net ⁽²⁾	(11,453		)	(3,080		)	(29,883		)	(9,109		)
Income (loss) from continuing operations before income taxes	(21,961		)	(19,134		)	21,409			14,762
Income tax benefit (expense)	8,537			6,926			(8,899		)	(5,144		)
Income (loss) from continuing operations	(13,424		)	(12,208		)	12,510			9,618
Discontinued operations, net of income taxes	(40,528		)	1,597			(57,981		)	7,122
Net income (loss)	(53,952		)	(10,611		)	(45,471		)	16,740
Net income attributable to noncontrolling interests	(167		)	—			(426		)	—
Net income (loss) attributable to Blucora, Inc.	$	(54,119	)	$	(10,611	)	$	(45,897	)	$	16,740
Net income (loss) per share attributable to Blucora, Inc. - basic:
Continuing operations	$	(0.33	)	$	(0.30	)	$	0.29		$	0.23
Discontinued operations	(0.97		)	0.04			(1.40		)	0.18
Basic net income (loss) per share	$	(1.30	)	$	(0.26	)	$	(1.11	)	$	0.41
Net income (loss) per share attributable to Blucora, Inc. - diluted:
Continuing operations	$	(0.33	)	$	(0.30	)	$	0.29		$	0.23
Discontinued operations	(0.97		)	0.04			(1.37		)	0.17
Diluted net income (loss) per share	$	(1.30	)	$	(0.26	)	$	(1.08	)	$	0.40
Weighted average shares outstanding:
Basic	41,635			40,950			41,404			40,952
Diluted	41,635			40,950			42,329			41,911

⁽¹⁾ Stock-based compensation expense was allocated among the following captions (in thousands):



	Three months ended September 30,				Nine months ended September 30,
	2016		2015		2016		2015
Cost of revenue	$	52	$	23	$	117	$	71
Engineering and technology	434		112		1,167		336
Sales and marketing	661		230		1,688		610
General and administrative	2,217		1,709		7,644		4,957
Total stock-based compensation expense	$	3,364	$	2,074	$	10,616	$	5,974

⁽²⁾ Other loss, net consisted of the following (in thousands):



	Three months ended September 30,						Nine months ended September 30,
	2016			2015			2016			2015
Interest income	$	(18	)	$	(170	)	$	(54	)	$	(430	)
Interest expense	7,824			2,203			25,396			6,833
Amortization of debt issuance costs	413			286			1,440			842
Accretion of debt discounts	1,099			975			3,599			2,873
(Gain) loss on debt extinguishment and modification expense	2,205			—			(641		)	—
Gain on third party bankruptcy settlement	(84		)	(224		)	(128		)	(1,066		)
Other	14			10			271			57
Other loss, net	$	11,453		$	3,080		$	29,883		$	9,109

Blucora, Inc.

Preliminary Condensed Consolidated Balance Sheets

(Unaudited)

(Amounts in thousands)



	September 30, 2016			December 31, 2015
ASSETS
Current assets:
Cash and cash equivalents	$	71,165		$	55,473
Cash segregated under federal or other regulations	630			3,557
Available-for-sale investments	4,492			11,301
Accounts receivable, net of allowance	7,076			7,884
Commissions receivable	15,294			16,328
Other receivables	6,827			24,407
Prepaid expenses and other current assets, net	4,059			10,062
Current assets of discontinued operations	70,432			211,663
Total current assets	179,975			340,675
Long-term assets:
Property and equipment, net	10,711			11,308
Goodwill, net	549,582			548,959
Other intangible assets, net	370,640			396,295
Other long-term assets	3,380			2,311
Total long-term assets	934,313			958,873
Total assets	$	1,114,288		$	1,299,548
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	5,840		$	4,689
Commissions and advisory fees payable	15,382			16,982
Accrued expenses and other current liabilities	11,446			13,006
Deferred revenue	9,139			11,521
Current portion of long-term debt, net	3,200			31,631
Current liabilities of discontinued operations	37,539			88,275
Total current liabilities	82,546			166,104
Long-term liabilities:
Long-term debt, net	283,801			353,850
Convertible senior notes, net	163,024			185,918
Deferred tax liability, net	104,236			103,520
Deferred revenue	2,479			1,902
Other long-term liabilities	11,233			10,932
Total long-term liabilities	564,773			656,122
Total liabilities	647,319			822,226

Redeemable noncontrolling interests	15,464			15,038

Stockholders’ equity:
Common stock	4			4
Additional paid-in capital	1,525,267			1,490,405
Accumulated deficit	(1,073,495		)	(1,027,598		)
Accumulated other comprehensive loss	(271		)	(527		)
Total stockholders’ equity	451,505			462,284
Total liabilities and stockholders’ equity	$	1,114,288		$	1,299,548

Blucora, Inc.

Preliminary Condensed Consolidated Statements of Cash Flows

(Unaudited)

(Amounts in thousands)



	Nine months ended September 30,
	2016			2015
Operating Activities:
Net income (loss)	$	(45,471	)	$	16,740
Less: Discontinued operations, net of income taxes	(57,981		)	7,122
Net income from continuing operations	12,510			9,618
Adjustments to reconcile net income from continuing operations to net cash from operating activities:
Stock-based compensation	10,616			5,974
Depreciation and amortization of acquired intangible assets	29,080			16,863
Excess tax benefits from stock-based award activity	(21,369		)	(28,632		)
Deferred income taxes	(12,484		)	(25,194		)
Amortization of premium on investments, net	164			1,250
Amortization of debt issuance costs	1,440			842
Accretion of debt discounts	3,599			2,873
Gain on debt extinguishment and modification expense	(641		)	—
Revaluation of acquisition-related contingent consideration liability	391			—
Other	18			60
Cash provided (used) by changes in operating assets and liabilities:
Cash segregated under federal or other regulations	2,927			—
Accounts receivable	793			136
Commissions receivable	1,034			—
Other receivables	19,656			1,166
Prepaid expenses and other current assets	6,003			4,665
Other long-term assets	(1,174		)	(63		)
Accounts payable	1,151			4,930
Commissions and advisory fees payable	(1,600		)	—
Deferred revenue	(1,805		)	(1,691		)
Accrued expenses and other current and long-term liabilities	19,786			28,149
Net cash provided by operating activities from continuing operations	70,095			20,946
Investing Activities:
Business acquisition, net of cash acquired	(1,788		)	(1,740		)
Purchases of property and equipment	(2,648		)	(866		)
Proceeds from sales of investments	—			16,507
Proceeds from maturities of investments	11,808			210,699
Purchases of investments	(5,147		)	(209,112		)
Net cash provided by investing activities from continuing operations	2,225			15,488
Financing Activities:
Repurchase of convertible notes	(20,667		)	—
Repayment of credit facilities	(105,000		)	(51,940		)
Stock repurchases	—			(7,068		)
Excess tax benefits from stock-based award activity	21,369			28,632
Proceeds from stock option exercises	1,141			2,374
Proceeds from issuance of stock through employee stock purchase plan	1,402			1,193
Tax payments from shares withheld for equity awards	(1,447		)	(1,193		)
Net cash used by financing activities from continuing operations	(103,202		)	(28,002		)
Net cash provided (used) by continuing operations	(30,882		)	8,432

Net cash provided by operating activities from discontinued operations	10,836			6,138
Net cash provided (used) by investing activities from discontinued operations	43,230			(206		)
Net cash used by financing activities from discontinued operations	(7,477		)	(5,020		)
Net cash provided by discontinued operations	46,589			912

Effect of exchange rate changes on cash and cash equivalents	(15		)	(6		)
Net increase in cash and cash equivalents	15,692			9,338
Cash and cash equivalents, beginning of period	55,473			41,968
Cash and cash equivalents, end of period	$	71,165		$	51,306

Blucora, Inc.

Preliminary Segment Information

(Unaudited)

(Amounts in thousands)



	Three months ended September 30,						Nine months ended September 30,
	2016			2015			2016			2015
Revenue:
Wealth Management	$	80,088		$	—		$	233,496		$	—
Tax Preparation	3,149			2,875			135,614			114,843
Total revenue	83,237			2,875			369,110			114,843
Operating income (loss):
Wealth Management	11,628			—			32,458			—
Tax Preparation	(4,382		)	(2,542		)	72,987			61,493
Corporate-level activity ⁽¹⁾	(17,754		)	(13,512		)	(54,153		)	(37,622		)
Total operating income (loss)	(10,508		)	(16,054		)	51,292			23,871
Other loss, net	(11,453		)	(3,080		)	(29,883		)	(9,109		)
Income tax benefit (expense)	8,537			6,926			(8,899		)	(5,144		)
Discontinued operations, net of income taxes	(40,528		)	1,597			(57,981		)	7,122
Net income (loss)	$	(53,952	)	$	(10,611	)	$	(45,471	)	$	16,740

⁽¹⁾ Corporate-level activity included the following (in thousands):



	Three months ended September 30,				Nine months ended September 30,
	2016		2015		2016		2015
Operating expenses	$	4,907	$	4,433	$	14,066	$	13,471
Stock-based compensation	3,364		2,074		10,616		5,974
Acquisition-related costs	—		1,314		391		1,314
Depreciation	1,137		585		3,386		1,661
Amortization of acquired intangible assets	8,346		5,106		25,694		15,202
Total corporate-level activity	$	17,754	$	13,512	$	54,153	$	37,622

Blucora, Inc.

Reconciliations of Non-GAAP Financial Measures to the Nearest Comparable GAAP Measures

Preliminary Adjusted EBITDA Reconciliation ⁽¹⁾

(Unaudited)

(Amounts in thousands)



	Three months ended September 30,						Nine months ended September 30,
	2016			2015			2016		2015
Operating income (loss) ⁽²⁾	$	(10,508	)	$	(16,054	)	$	51,292	$	23,871
Stock-based compensation	3,364			2,074			10,616		5,974
Depreciation and amortization of acquired intangible assets	9,483			5,691			29,080		16,863
Acquisition-related costs	—			1,314			391		1,314
Adjusted EBITDA	$	2,339		$	(6,975	)	$	91,379	$	48,022

Preliminary Non-GAAP Net Income (Loss) Reconciliation ⁽¹⁾

(Unaudited)

(Amounts in thousands, except per share amounts)



	Three months ended September 30,						Nine months ended September 30,
	2016			2015			2016			2015
Net income (loss) attributable to Blucora, Inc.⁽²⁾	$	(54,119	)	$	(10,611	)	$	(45,897	)	$	16,740
Discontinued operations, net of income taxes	40,528			(1,597		)	57,981			(7,122		)
Stock-based compensation	3,364			2,074			10,616			5,974
Amortization of acquired intangible assets	8,346			5,106			25,694			15,202
Accretion of debt discount on Convertible Senior Notes	901			975			2,749			2,873
Accelerated accretion of debt discount on Convertible Senior Notes	—			—			1,628			—
Gain on Convertible Senior Notes repurchased	—			—			(7,724		)	—
Acquisition-related costs	—			1,314			391			1,314
Impact of noncontrolling interests	167			—			426			—
Cash tax impact of adjustments to GAAP net income	(17		)	(196		)	244			(297		)
Non-cash income tax (benefit) expense ⁽¹⁾	(9,312		)	(6,984		)	6,460			4,970
Non-GAAP net income (loss)	$	(10,142	)	$	(9,919	)	$	52,568		$	39,654

Per diluted share:
Net income (loss) attributable to Blucora, Inc.	$	(1.30	)	$	(0.26	)	$	(1.08	)	$	0.40
Discontinued operations, net of income taxes	0.97			(0.04		)	1.37			(0.17		)
Stock-based compensation	0.08			0.05			0.25			0.14
Amortization of acquired intangible assets	0.21			0.13			0.60			0.37
Accretion of debt discount on Convertible Senior Notes	0.02			0.02			0.06			0.07
Accelerated accretion of debt discount on Convertible Senior Notes	—			—			0.04			—
Gain on Convertible Senior Notes repurchased	—			—			(0.18		)	—
Acquisition-related costs	—			0.03			0.01			0.03
Impact of noncontrolling interests	0.00			—			0.01			—
Cash tax impact of adjustments to GAAP net income	(0.00		)	(0.00		)	0.01			(0.01		)
Non-cash income tax (benefit) expense	(0.22		)	(0.17		)	0.15			0.12
Non-GAAP net income (loss)	$	(0.24	)	$	(0.24	)	$	1.24		$	0.95
Weighted average shares outstanding used in computing per diluted share amounts	41,635			40,950			42,329			41,911

Blucora, Inc.

Reconciliations of Non-GAAP Financial Measures to the Nearest Comparable GAAP Measures

(As Reported and Pro Forma)

Preliminary Adjusted EBITDA Reconciliation (As Reported and Pro Forma) ⁽¹⁾

(Unaudited)

(Amounts in thousands)



	Three months ended September 30,						Nine months ended September 30,
	2016			2015			2016		2015
	As reported			Pro forma			As reported		Pro forma
Operating income (loss)	$	(10,508	)	$	(10,277	)	$	51,292	$	35,159
Stock-based compensation	3,364			3,379			10,616		9,557
Depreciation and amortization of acquired intangible assets	9,483			11,411			29,080		34,058
Acquisition-related costs	—			—			391		—
Adjusted EBITDA	$	2,339		$	4,513		$	91,379	$	78,774

Preliminary Non-GAAP Net Income (Loss) Reconciliation (As Reported and Pro Forma) ⁽¹⁾

(Unaudited)

(Amounts in thousands, except per share amounts)



	Three months ended September 30,						Nine months ended September 30,
	2016			2015			2016			2015
	As reported			Pro forma			As reported			Pro forma
Net income (loss) attributable to Blucora, Inc.	$	(54,119	)	$	(11,261	)	$	(45,897	)	$	9,479
Discontinued operations, net of income taxes	40,528			(1,597		)	57,981			(7,122		)
Stock-based compensation	3,364			3,379			10,616			9,557
Amortization of acquired intangible assets	8,346			10,243			25,694			30,613
Accretion of debt discount on Convertible Senior Notes	901			975			2,749			2,873
Accelerated accretion of debt discount on Convertible Senior Notes	—			—			1,628			—
Gain on Convertible Senior Notes repurchased	—			—			(7,724		)	—
Acquisition-related costs	—			—			391			—
Impact of noncontrolling interests	167			—			426			—
Cash tax impact of adjustments to GAAP net income	(17		)	(100		)	244			(300		)
Non-cash income tax (benefit) expense	(9,312		)	(8,600		)	6,460			(174		)
Non-GAAP net income (loss)	$	(10,142	)	$	(6,961	)	$	52,568		$	44,926

Per diluted share:
Net income (loss) attributable to Blucora, Inc.	$	(1.30	)	$	(0.27	)	$	(1.08	)	$	0.23
Discontinued operations, net of income taxes	0.97			(0.04		)	1.37			(0.17		)
Stock-based compensation	0.08			0.08			0.25			0.23
Amortization of acquired intangible assets	0.21			0.25			0.60			0.73
Accretion of debt discount on Convertible Senior Notes	0.02			0.02			0.06			0.07
Accelerated accretion of debt discount on Convertible Senior Notes	—			—			0.04			—
Gain on Convertible Senior Notes repurchased	—			—			(0.18		)	—
Acquisition-related costs	—			—			0.01			—
Impact of noncontrolling interests	0.00			—			0.01			—
Cash tax impact of adjustments to GAAP net income	(0.00		)	(0.00		)	0.01			(0.01		)
Non-cash income tax (benefit) expense	(0.22		)	(0.21		)	0.15			(0.01		)
Non-GAAP net income (loss)	$	(0.24	)	$	(0.17	)	$	1.24		$	1.07
Weighted average shares outstanding used in computing per diluted share amounts	41,635			40,950			42,329			41,911

Preliminary Adjusted EBITDA Reconciliation for Forward-Looking Guidance

(Amounts in thousands)



	Ranges for the three months ending						Ranges for the year ending
	December 31, 2016						December 31, 2016
Loss from continuing operations	$	(17,700	)	$	(15,600	)	$	(5,200	)	$	(3,100	)
Stock-based compensation	3,400			3,300			14,000			13,900
Depreciation and amortization of acquired intangible assets	9,600			9,500			38,700			38,600
Restructuring costs	5,200			4,400			5,200			4,400
Acquisition-related costs	—			—			400			400
Other loss, net ⁽³⁾	9,800			9,500			39,700			39,400
Income tax benefit	(11,800		)	(10,300		)	(2,900		)	(1,400		)
Adjusted EBITDA	$	(1,500	)	$	800		$	89,900		$	92,200

Preliminary Non-GAAP Income (Loss) from Continuing Operations Reconciliation for Forward-Looking Guidance

(Amounts in thousands)



	Ranges for the three months ending						Ranges for the year ending
	December 31, 2016						December 31, 2016
Loss from continuing operations	$	(17,700	)	$	(15,600	)	$	(5,200	)	$	(3,100	)
Stock-based compensation	3,400			3,300			14,000			13,900
Amortization of acquired intangible assets	8,400			8,400			34,100			34,100
Accretion of debt discount on Convertible Senior Notes	900			900			3,700			3,700
Accelerated accretion of debt discount on Convertible Senior Notes	—			—			1,600			1,600
Gain on Convertible Senior Notes repurchased	—			—			(7,700		)	(7,700		)
Restructuring costs	5,200			4,400			5,200			4,400
Acquisition-related costs	—			—			400			400
Cash tax impact of adjustments to loss from continuing operations	—			—			200			200
Non-cash income tax benefit	(12,900		)	(11,100		)	(6,400		)	(4,600		)
Non-GAAP income (loss) from continuing operations	$	(12,700	)	$	(9,700	)	$	39,900		$	42,900

Notes to Reconciliations of Non-GAAP Financial Measures to the Nearest Comparable GAAP Measures

⁽¹⁾ We define Adjusted EBITDA differently for this report than we have defined it in the past, due to the impact of noncontrolling interests from the HD Vest acquisition that we began recognizing in the first quarter of 2016, the discontinued operations treatment of our Search and Content and E-Commerce businesses as determined in the fourth quarter of 2015, and acquisition-related costs in connection with the HD Vest and SimpleTax acquisitions that we would not have otherwise incurred as part of our business operations. Acquisition-related costs include professional fees and other direct transaction costs and changes in the fair value of contingent consideration liabilities related to acquired companies. The HD Vest acquisition closed in the fourth quarter of 2015 and resulted in significant transaction costs. The SimpleTax acquisition included contingent consideration, for which the fair value of that liability was revalued in the second quarter of 2016. We define Adjusted EBITDA as operating income (loss), determined in accordance with GAAP, excluding the effects of depreciation, amortization of acquired intangible assets (including acquired technology), stock-based compensation, and acquisition-related costs.

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.

We define non-GAAP net income (loss) differently for this report than we have defined it in the past, due to the impact of noncontrolling interests from the HD Vest acquisition that we began recognizing in the first quarter of 2016, the discontinued operations treatment of our Search and Content and E-Commerce businesses as determined in the fourth quarter of 2015, and acquisition-related costs in connection with the HD Vest and SimpleTax acquisitions that we would not have otherwise incurred as part of our business operations. Acquisition-related costs are described further under the first paragraph in this note (1). For this report, we define non-GAAP net income (loss) as net income (loss) attributable to Blucora, Inc., determined in accordance with GAAP, excluding the effects of stock-based compensation, amortization of acquired intangible assets (including acquired technology), accretion of debt discount and accelerated accretion of debt discount on the Convertible Senior Notes, gain on Convertible Senior Notes repurchased, acquisition-related costs, discontinued operations, the impact of noncontrolling interests, and the related cash tax impact of those adjustments, and non-cash income taxes. We exclude the non-cash portion of income taxes because of our ability to offset a substantial portion of our cash tax liabilities by using deferred tax assets, which primarily consist of U.S. federal net operating losses. The majority of these net operating losses will expire, if unutilized, between 2020 and 2024.

We believe that non-GAAP net income (loss) and non-GAAP net income (loss) per share provide meaningful supplemental information to management, investors, and analysts regarding our performance and the valuation of our business by excluding items in the statement of operations that we do not consider part of our ongoing operations or have not been, or are not expected to be, settled in cash. Additionally, we believe that non-GAAP net income (loss) and non-GAAP net income (loss) per share are common measures used by investors and analysts to evaluate our performance and the valuation of our business. Non-GAAP net income (loss) 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). Other companies may calculate non-GAAP net income differently, and, therefore, our non-GAAP net income may not be comparable to similarly titled measures of other companies.

⁽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, gain/loss on debt extinguishment and modification expense, and gain on third party bankruptcy settlement.

EX-99.2 3 ex-992earningsreleaseq32016.htm EXHIBIT 99.2 Exhibit

Exhibit 99.2

Blucora, Inc.

Supplemental Information

September 30, 2016

Table of Contents



Financial Information
Consolidated Financial Results	2
Reconciliation of Non-GAAP Financial Measures	4
Net Leverage Ratio	5
Reconciliation of Operating Free Cash Flow from Continuing Operations	6

Operating Metrics
Wealth Management	7

Blucora Consolidated Financial Results⁽¹⁾



(in thousands except %s and per share amounts, rounding differences may exist)	2014				2015																	2016
	FY 12/31				1Q			2Q			3Q			4Q			FY 12/31					1Q			2Q			3Q
	pro forma				pro forma			pro forma			pro forma			pro forma			pro forma					as reported			as reported			as reported
Segment revenue:
Wealth Management ⁽¹⁾	$	304,854			$	76,795		$	80,834		$	79,977		$	82,133		$	319,739				$	77,291		$	76,117		$	80,088
Tax Preparation ⁽²⁾	103,719				81,068			30,900			2,875			2,865			117,708					88,474			43,991			3,149
Total	$	408,573			$	157,863		$	111,734		$	82,852		$	84,998		$	437,447				$	165,765		$	120,108		$	83,237
Segment income (loss): ⁽³⁾
Wealth Management ⁽¹⁾	$	40,314			$	8,647		$	10,617		$	11,488		$	12,245		$	42,997				$	10,906		$	9,924		$	11,628
Tax Preparation ⁽²⁾	49,696				44,145			19,890			(2,542		)	(4,509		)	56,984					47,573			29,796			(4,382		)
Total	$	90,010			$	52,792		$	30,507		$	8,946		$	7,736		$	99,981				$	58,479		$	39,720		$	7,246
Segment income (loss) % of revenue:
Wealth Management ⁽¹⁾	13		%		11		%	13		%	14		%	15		%	13		%			14		%	13		%	15		%
Tax Preparation ⁽²⁾	48		%		54		%	64		%	(88		)%	(157		)%	48		%			54		%	68		%	(139		)%
Total	22		%		33		%	27		%	11		%	9		%	23		%			35		%	33		%	9		%
Unallocated corporate operating expenses ⁽³⁾	$	14,235			$	4,376		$	4,662		$	4,433		$	4,279		$	17,750				$	4,699		$	4,460		$	4,907
Adjusted EBITDA	$	75,775			$	48,416		$	25,845		$	4,513		$	3,457		$	82,231				$	53,780		$	35,260		$	2,339
Other unallocated operating expenses: ⁽³⁾
Stock-based compensation⁽⁴⁾	$	13,591			$	2,889		$	3,289		$	3,379		$	4,034		$	13,591				$	4,229		$	3,023		$	3,364
Depreciation	3,972				1,144			1,133			1,168			1,168			4,613					1,122			1,127			1,137
Amortization of acquired intangible assets ⁽⁴⁾	40,740				10,185			10,185			10,243			10,238			40,851					8,983			8,365			8,346
Acquisition-related costs	—				—			—			—			—			—					—			391			—
Operating income (loss)	$	17,472			$	34,198		$	11,238		$	(10,277	)	$	(11,983	)	$	23,176				$	39,446		$	22,354		$	(10,508	)
Unallocated other income/loss: ⁽³⁾
Interest income	$	(355	)		$	(122	)	$	(138	)	$	(170	)	$	(179	)	$	(609	)			$	(25	)	$	(11	)	$	(18	)
Interest expense⁽⁵⁾	37,034				9,224			9,220			9,298			9,317			37,059					9,191			8,381			7,824
Amortization of debt issuance costs⁽⁵⁾	1,753				454			467			482			491			1,894					610			417			413
Accretion of debt discounts ⁽⁵⁾	4,525				1,178			1,207			1,235			1,260			4,880					1,406			1,094			1,099
(Gain) loss on debt extinguishment and modification expense ⁽⁶⁾	—				—			—			—			—			—					(3,843		)	997			2,205
Other (income) loss, net	(285		)		(487		)	(308		)	(214		)	(281		)	(1,290		)			175			38			(70		)
Total	$	42,672			$	10,247		$	10,448		$	10,631		$	10,608		$	41,934				$	7,514		$	10,916		$	11,453
Income (loss) from continuing operations before income taxes	$	(25,200	)		$	23,951		$	790		$	(20,908	)	$	(22,591	)	$	(18,758	)			$	31,932		$	11,438		$	(21,961	)
Income tax (benefit) expense:^{(3) (7)}
Cash	$	2,200			$	550		$	550		$	550		$	550		$	2,200				$	1,064		$	600		$	775
Non-cash ⁽⁸⁾	(11,902		)		8,671			(245		)	(8,600		)	(9,248		)	(9,422		)			10,579			5,193			(9,312		)
Total	$	(9,702	)		$	9,221		$	305		$	(8,050	)	$	(8,698	)	$	(7,222	)			$	11,643		$	5,793		$	(8,537	)
GAAP income (loss) from continuing operations ⁽⁹⁾	$	(15,498	)		$	14,730		$	485		$	(12,858	)	$	(13,893	)	$	(11,536	)			$	20,289		$	5,645		$	(13,424	)
GAAP income (loss) from continuing operations per share - diluted	$	(0.37	)		$	0.35		$	0.01		$	(0.31	)	$	(0.34	)	$	(0.28	)			$	0.48		$	0.13		$	(0.33	)

GAAP discontinued operations, net of income taxes ⁽¹⁰⁾	$	(30,003	)		$	3,685		$	1,840		$	1,597		$	(34,470	)	$	(27,348	)			$	2,522		$	(19,975	)	$	(40,528	)
GAAP impact of noncontrolling interests ⁽⁹⁾	—				—			—			—			—			—					(144		)	(115		)	(167		)
GAAP net income (loss) attributable to Blucora, Inc.	$	(45,501	)		$	18,415		$	2,325		$	(11,261	)	$	(48,363	)	$	(38,884	)			$	22,667		$	(14,445	)	$	(54,119	)

Non-GAAP net income (loss)	$	30,125			$	37,315		$	14,572		$	(6,961	)	$	(7,976	)	$	36,950				$	39,286		$	23,424		$	(10,142	)
Non-GAAP net income (loss) per share - diluted	$	0.70		(11)	$	0.89		$	0.35		$	(0.17	)	$	(0.19	)	$	0.88		(12	)	$	0.94		$	0.55		$	(0.24	)

Outstanding Shares	40,882				40,851			40,944			40,951			40,954			40,954					41,245			41,495			41,711
Basic shares - GAAP	41,396				40,987			40,918			40,950			40,979			40,959					41,171			41,405			41,635
Diluted shares - GAAP	41,396				41,899			41,936			40,950			40,979			40,959					41,610			42,298			41,635

Notes to Consolidated Financial Results on next page

Notes to Consolidated Financial Results

⁽¹⁾

On October 14, 2015, Blucora announced the acquisition of HD Vest, which closed on December 31, 2015. As part of that announcement, we also stated our plans to divest the Search and Content and E-Commerce businesses in order to focus more strategically on the technology-enabled financial solutions market. The pro forma information represents the combination of HD Vest, TaxAct, and corporate expenses as if the acquisition closed on January 1, 2014. The Company believes that this presentation most accurately reflects the financial performance of the Company on a go-forward basis.


⁽²⁾	As a highly seasonal business, almost all of the Tax Preparation revenue is generated in the first four months of the calendar year.

⁽³⁾

We do not allocate certain general and administrative costs (including personnel and overhead costs), stock-based compensation, depreciation, amortization of acquired intangible assets, acquisition-related costs, other income/loss, or income taxes to the reportable segments. The general and administrative costs are included in "Unallocated corporate operating expenses." In addition, "Unallocated corporate operating expenses" for the pro forma quarterly and fiscal year 2015 results exclude transaction costs related to the HD Vest acquisition and CEO separation-related costs.


⁽⁴⁾	Includes stock-based compensation for Blucora share-based award grants to HD Vest employees and amortization of the definite-lived intangible assets identified in the HD Vest acquisition.


⁽⁵⁾	Excludes interest expense and amortization of debt-related costs associated with the TaxAct 2013 credit facility and HD Vest's previous debt facility, both of which were paid off at the acquisition date, and includes similar expenses associated with the TaxAct - HD Vest 2015 credit facility that was used to finance the acquisition.

⁽⁶⁾

1Q16 gain on debt extinguishment and modification expense related to the repurchase of a portion of the Convertible Senior Notes below par value, offset by a loss on debt extinguishment and modification expense related to the prepayment of a portion of the TaxAct - HD Vest 2015 credit facility, which resulted in the write-down of a portion of the unamortized discount and debt issuance costs. 2Q16 and 3Q16 loss on debt extinguishment and modification expense related to the prepayment of a portion of the TaxAct - HD Vest 2015 credit facility during each of those quarters.


⁽⁷⁾	Pro forma excludes historical tax expense and includes tax expense using an effective tax rate of 38.5% with anticipated cash taxes of $2.2 million per year, given expected net operating loss utilization.


⁽⁸⁾	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.


⁽⁹⁾	GAAP income/loss from continuing operations excludes the impact of noncontrolling interests associated with HD Vest management rollover equity ownership of 4.48%. The impact of noncontrolling interests is recorded separately and after GAAP income/loss from continuing operations.

⁽¹⁰⁾

On October 14, 2015, Blucora announced plans to divest of the Search and Content and E-Commerce businesses. Accordingly, our financial condition, results of operations, and cash flows reflect the Search and Content and E-Commerce businesses as discontinued operations for all periods presented. On August 9, 2016, we closed on an agreement with OpenMail, under which OpenMail acquired substantially all of the assets and assumed certain specified liabilities of the Search and Content business for $45.2 million. As a result, we recognized a $21.6 million loss on sale of discontinued operations in FY 2016.


⁽¹¹⁾	Calculation in FY 2014 used 42,946,000 diluted shares due to non-GAAP net income.


⁽¹²⁾	Calculation in FY 2015 used 41,861,000 diluted shares due to non-GAAP net income.

Blucora Reconciliation of Non-GAAP Financial Measures ^{(1) (2)}



	2014			2015															2016
(in thousands except per share amounts, rounding differences may exist)	FY 12/31			1Q			2Q			3Q			4Q			FY 12/31			1Q			2Q			3Q
	pro forma			pro forma			pro forma			pro forma			pro forma			pro forma			as reported			as reported			as reported
Adjusted EBITDA
Operating income (loss) ⁽³⁾	$	17,472		$	34,198		$	11,238		$	(10,277	)	$	(11,983	)	$	23,176		$	39,446		$	22,354		$	(10,508	)
Stock-based compensation	13,591			2,889			3,289			3,379			4,034			13,591			4,229			3,023			3,364
Depreciation and amortization of acquired intangible assets	44,712			11,329			11,318			11,411			11,406			45,464			10,105			9,492			9,483
Acquisition-related costs	—			—			—			—			—			—			—			391			—
Adjusted EBITDA ⁽⁴⁾	$	75,775		$	48,416		$	25,845		$	4,513		$	3,457		$	82,231		$	53,780		$	35,260		$	2,339
Non-GAAP Net Income (Loss)
Net income (loss) attributable to Blucora, Inc.⁽³⁾	$	(45,501	)	$	18,415		$	2,325		$	(11,261	)	$	(48,363	)	$	(38,884	)	$	22,667		$	(14,445	)	$	(54,119	)
Discontinued operations, net of income taxes	30,003			(3,685		)	(1,840		)	(1,597		)	34,470			27,348			(2,522		)	19,975			40,528
Stock-based compensation	13,591			2,889			3,289			3,379			4,034			13,591			4,229			3,023			3,364
Amortization of acquired intangible assets	40,740			10,185			10,185			10,243			10,238			40,851			8,983			8,365			8,346
Accretion of debt discount on Convertible Senior Notes	3,594			940			958			975			993			3,866			963			885			901
Accelerated accretion of debt discount on Convertible Senior Notes	—			—			—			—			—			—			1,628			—			—
Gain on Convertible Senior Notes repurchased	—			—			—			—			—			—			(7,724		)	—			—
Acquisition-related costs	—			—			—			—			—			—			—			391			—
Impact of noncontrolling interests	—			—			—			—			—			—			144			115			167
Cash tax impact of adjustments to GAAP net income	(400		)	(100		)	(100		)	(100		)	(100		)	(400		)	339			(78		)	(17		)
Non-cash income tax (benefit) expense	(11,902		)	8,671			(245		)	(8,600		)	(9,248		)	(9,422		)	10,579			5,193			(9,312		)
Non-GAAP net income (loss) ⁽⁴⁾	$	30,125		$	37,315		$	14,572		$	(6,961	)	$	(7,976	)	$	36,950		$	39,286		$	23,424		$	(10,142	)

Non-GAAP net income (loss) per share	$	0.70		$	0.89		$	0.35		$	(0.17	)	$	(0.19	)	$	0.88		$	0.94		$	0.55		$	(0.24	)
Diluted shares	42,946			41,899			41,936			40,950			40,979			41,861			41,610			42,298			41,635

⁽¹⁾


⁽²⁾	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 October 27, 2016 Current Report on Form 8-K.


⁽³⁾	As presented in the Blucora Consolidated Financial Results (unaudited) on page 2.

⁽⁴⁾

We define Adjusted EBITDA and Non-GAAP Net Income (Loss) differently than we have defined it in the past, due to the impact of noncontrolling interests from the HD Vest acquisition that we began recognizing in 1Q16, the discontinued operations treatment of our Search and Content and E-Commerce businesses as determined in 4Q15, separation-related costs in connection with the departure of our chief executive officer as announced in 4Q15, and acquisition-related costs in connection with the HD Vest and SimpleTax acquisitions that we would not have otherwise incurred as part of our business operations. Acquisition-related costs include professional fees and other direct transaction costs and changes in the fair value of contingent consideration liabilities related to acquired companies. The HD Vest acquisition closed in 4Q15 and resulted in significant transaction costs. The SimpleTax acquisition included contingent consideration, for which the fair value of that liability was revalued in 2Q16. Effective with 1Q16, we also define Non-GAAP Net Income (Loss) to exclude the gain on Convertible Senior Notes repurchased, which we repurchased below par value, and the related accelerated accretion of debt discount in 1Q16.

Blucora Net Leverage Ratio



	2015				2016
(in thousands except ratio, rounding differences may exist)	FY 12/31				1Q				2Q				3Q
CASH:
Cash and cash equivalents	$	55,473			$	67,955			$	74,273			$	71,165
Available-for-sale investments	11,301				11,642				7,821				4,492
	$	66,774			$	79,597			$	82,094			$	75,657
DEBT:
Convertible Senior Notes	$	201,250			$	172,859			$	172,859			$	172,859
TaxAct - HD Vest 2015 credit facility	400,000				360,000				340,000				295,000
Note payable, related party	6,400				6,400				6,400				6,400
	$	607,650			$	539,259			$	519,259			$	474,259

NET DEBT FROM CONTINUING OPERATIONS	$	(540,876	)		$	(459,662	)		$	(437,165	)		$	(398,602	)

OTHER:
Add: Escrow receivable ⁽¹⁾	$	20,000			$	—			$	—			$	—

TOTAL NET DEBT FROM CONTINUING OPERATIONS	$	(520,876	)		$	(459,662	)		$	(437,165	)		$	(398,602	)

Last twelve months (pro forma): ⁽²⁾
SEGMENT INCOME:
Wealth Management	$	42,997			$	45,256			$	44,563			$	44,703
Tax Preparation	56,984				60,412				70,318				68,478
	99,981				105,668				114,881				113,181
Unallocated corporate operating expenses	(17,750		)		(18,073		)		(17,871		)		(18,345		)

ADJUSTED EBITDA	$	82,231			$	87,595			$	97,010			$	94,836

LEVERAGE RATIO	6.3			x	5.2			x	4.5			x	4.2			x


⁽¹⁾	Amount represents consideration funded to escrow that was contingent upon HD Vest's 2015 earnings performance. The contingent consideration was not achieved; therefore, the amount was returned to the Company from escrow in 1Q 2016.


⁽²⁾	The pro forma information represents the combination of HD Vest, TaxAct, and corporate expenses as if the acquisition closed on January 1, 2014. The Company believes that this presentation most accurately reflects the financial performance of the Company on a go-forward basis.

Blucora Reconciliation of Operating Free Cash Flow from Continuing Operations ⁽¹⁾



	2016
(in thousands, rounding differences may exist)	1Q			2Q			3Q
Net cash provided by operating activities from continuing operations	$	51,727		$	13,761		$	4,607
Excess tax benefits from stock-based award activity⁽²⁾	16,865			10,065			(5,561		)
Purchases of property and equipment	(677		)	(851		)	(1,120		)
Operating free cash flow from continuing operations	$	67,915		$	22,975		$	(2,074	)

⁽¹⁾

We define operating free cash flow from continuing operations as net cash provided by operating activities from continuing operations 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 continuing businesses, after the purchases of property and equipment, that can then be used for, among other things, strategic acquisitions and investments in the businesses, 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.

Blucora Operating Metrics - Wealth Management



	2014			2015															2016
(in thousands except %s, rounding differences may exist)	FY 12/31			1Q			2Q			3Q			4Q			FY 12/31			1Q			2Q			3Q
	pro forma			pro forma			pro forma			pro forma			pro forma			pro forma			as reported			as reported			as reported
Segment revenue	$	304,854		$	76,795		$	80,834		$	79,977		$	82,133		$	319,739		$	77,291		$	76,117		$	80,088
Segment net revenue ⁽¹⁾	$	96,735		$	23,798		$	25,587		$	24,752		$	25,612		$	99,749		$	25,022		$	25,094		$	25,167
Segment income ⁽²⁾	$	40,314		$	8,647		$	10,617		$	11,488		$	12,245		$	42,997		$	10,906		$	9,924		$	11,628
Segment income % of revenue	13		%	11		%	13		%	14		%	15		%	13		%	14		%	13		%	15		%
Segment income % of net revenue	42		%	36		%	41		%	46		%	48		%	43		%	44		%	40		%	46		%



(in thousands except %s, rounding differences may exist)			2014			2015															2016
	Sources of Revenue	Primary Drivers	FY 12/31			1Q			2Q			3Q			4Q			FY 12/31			1Q			2Q			3Q
			pro forma			pro forma			pro forma			pro forma			pro forma			pro forma			as reported			as reported			as reported
Advisor-driven	Commission	- Transactions - Asset levels	$	152,344		$	37,475		$	39,143		$	38,835		$	41,490		$	156,943		$	36,856		$	35,252		$	38,962
Advisor-driven	Advisory	- Advisory asset levels	120,185			31,734			32,799			33,327			31,573			129,433			31,532			31,522			32,705
Other revenue	Asset-based	- Cash balances - Interest rates - Number of accounts - Client asset levels	18,659			4,590			5,016			4,580			4,685			18,871			5,818			5,395			5,476
Other revenue	Transaction and fee	- Account activity - Number of clients - Number of advisors - Number of accounts	13,666			2,996			3,876			3,235			4,385			14,492			3,085			3,948			2,945
	Total revenue		$	304,854		$	76,795		$	80,834		$	79,977		$	82,133		$	319,739		$	77,291		$	76,117		$	80,088
	Total recurring revenue ⁽³⁾		$	236,100		$	60,540		$	63,409		$	62,373		$	61,671		$	247,993		$	60,069		$	61,160		$	62,543
	Recurring revenue rate ⁽³⁾		77.4		%	78.8		%	78.4		%	78.0		%	75.1		%	77.6		%	77.7		%	80.3		%	78.1		%



(in thousands except %s and as otherwise indicated, rounding differences may exist)	2014			2015															2016
	FY 12/31			1Q			2Q			3Q			4Q			FY 12/31			1Q			2Q			3Q
	pro forma			pro forma			pro forma			pro forma			pro forma			pro forma			as reported			as reported			as reported
Total Assets Under Administration ("AUA")	$	37,132,757		$	37,791,025		$	37,839,908		$	35,625,032		$	36,573,766		$	36,573,766		$	36,505,384		$	37,233,522		$	38,482,620
Advisory Assets Under Management ("AUM")	$	9,552,876		$	9,860,064		$	9,899,542		$	9,396,557		$	9,692,244		$	9,692,244		$	9,592,025		$	9,814,232		$	10,204,448
% of total AUA	25.7		%	26.1		%	26.2		%	26.4		%	26.5		%	26.5		%	26.3		%	26.4		%	26.5		%
Number of advisors (in ones)	4,515			4,564			4,579			4,625			4,600			4,600			4,584			4,561			4,568


⁽¹⁾	Amount represents segment revenue less advisor commission payout.


⁽²⁾	Excludes expenses associated with non-recurring projects.


⁽³⁾	Recurring revenue consists of trailing commissions, advisory fees, fees from cash sweep programs, and certain transaction and fee revenue.

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