BCOR (2021 - Q1)

Ladies and gentlemen, thank you for standing by, and welcome to the First Quarter 2021 Blucora Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. I'd now like to hand the conference over to your host, Dee Littrell, Investor Relations. Please go ahead. Dee Litt

Thank you, and welcome, everyone, to Blucora's first quarter 2021 earnings conference call. By now, you should have had the opportunity to review a copy of our earnings release and supplemental information. If you have not reviewed these documents, they are available on the Investor Relations section of our website at blucora.com. I'm joined today by Chris Walters, Chief Executive Officer; and Marc Mehlman, Chief Financial Officer.

Thank you, Dee and good morning, everyone. It has been a busy, but productive first quarter of 2021, as we continue to execute on the vision we have laid out for the business. We have made great strides in positioning the business for long-term sustainable growth, all while focusing on expanding profitability. Before I delve in to the details of the quarter, I'd like to address the annual meeting. First, on behalf of the Board, I want to thank shareholders for their support as we continue to execute on the strategy for the company. That said, I want to acknowledge the valuable engagement and feedback we received during extensive conversations with investors and reiterate the Board's and Management's commitment toward effecting positive change and maximizing value for all shareholders. Transparency is essential to this commitment. During our Investor Day, planned for June 15th, we will dive into the long-term financial projections for our two business segments, including both the significant value that can be created by executing sustainable growth strategies for each segment, as well as the crossover benefits between them that can deliver incremental growth and value to our shareholders, financial professionals and consumers. Now that we are nearing the end of the extended 2020 tax season, we are looking forward to engaging with our investors around the KPIs and financial expectations of the strategy on which we are executing. I want to reiterate our commitment to driving shareholder value, in whatever form that may take. Our Board takes diversity of thought and perspective seriously, within the boardroom, across the company and from our shareholders, and has and will continue to evaluate all avenues for driving maximum shareholder value.

Thank you, Chris. Good morning, everyone. I'd like to provide additional detail on our first quarter results and our outlook for Q2, 2021 and full year. As a reminder, on last quarter's call, we did not provide Q1 full business guidance in light of the potential delay in the tax season, but did provide guidance for revenue and segment income for Wealth Management, along with expense for unallocated corporate activity. I will reference in my comments comparisons to our guidance ranges where applicable. Now, starting with first quarter consolidated results. Total revenue of $278.4 million; GAAP net income of $27.6 million or $0.56 per diluted share. Embedded within our GAAP net income figure are a $6.3 million true up associated with the Avantax Planning Partners, formerly HKFS, earnout, which as I have mentioned on previous calls, we expect to be at the full $30 million amount for the first of two payments, but accounting treatment doesn't reflect that number until we approach the earnout date; an approximately $2.75 million impact associated with the proxy contest, where we expect an additional approximately $750,000 in costs as the final fees are paid; income tax provision expense of $1.7 million.

Thank you. Our first question comes from the line of Jackson Ader with J.P. Morgan. Your line is now open.

Great. Good morning, guys. Thanks for taking my questions. First one, from a high level on the tax side. If we think about all the big influx of stimulus filers from a year ago from the 2019 taxes for the 2020 season, are they sticking around this year in 2021?

So, last year, the dynamic you just described ultimately did contribute to really, really healthy market growth. It's hard to predict how much of that will stick around until we get through -- obviously, when we get to the end of the season. And right now, what we saw early in the season was slowness in demand for the entire industry due to the confusion about some of the stimulus payments and unemployment payments. But ultimately, we expect some of those units to stick this year, but we won't really know until the end of the season.

Okay. And there was a comment, I think you made Chris, on revenue per return. Just to clarify, are you saying that you expect revenue per return to actually be up year-over-year, or is it better than you guys had expected entering the tax season?

It's better than we expected coming into the tax season.

Okay. All right. Yes. That makes sense. Last one on tax. Just -- okay. You've mentioned, Marc, 12 days left. How do you sit relative to where -- I think, you would have expected to sit with 12 days left regardless of when the deadline is? 12 days versus 12 days expectations, how do you feel?

Yeah. That's directed to you.

Sure. What I'd say is we've reaffirmed our guidance on the revenue side and obviously, upped our guidance a bit from a profitability perspective. And so, relative to our expectations, we feel good heading into the final 12 days. The curves this year and how consumers have been filing has certainly been different than what we've seen over the last 20 years of our experience. Nonetheless, based on our assessment of the market, we feel good with the amount of demand that's left and our expectations of what our share will be.

Okay. All right. Thank you.

Thank you. Our next question comes from the line of Dan Kurnos with The Benchmark Company. Your line is open.

Thanks. Good morning, guys. Just maybe, Chris, I know you're obviously trying to save some dry powder for the Investor Day. But just initial thoughts on hybrid-assist tax rate and to the extent that you are pushing it or looking to expand the product feedback, just anything that kind of gives us some help on how the initial rollout or expansion is going?

Sure. So, we will share more detailed metrics after we get through the end of the season and in Investor Day. I would say, generally, we're really excited having officially launched hybrid-assisted in January of this year. Our team put a ton of work into it over the last couple of seasons to be ready. That's just the first year. And there are a number of potential outcomes in terms of how it could play out. And we're happy with what we've seen so far, and we'll share more specifics when we get to Investor Day.

And then, again, not trying to push the envelope, but just in terms of getting users -- sort of following up on the first question, getting users to move up funnel, you talked a lot about NPS, I think that's helpful, and retention rates. How much education are you guys doing? You raised your profitability a little bit on the tax side, which I think is comforting given sort of the math that's been tax season and who knows what pricing will do the last kind of rush here. But to the extent that you guys are out there, pushing brand, talking about the pricing, you talked -- talking about the delta in pricing, but then even ex hybrid-assist just trying to get people to sort of move up funnel just education efforts there, and any kind of granularity you can give us around sort of what you guys are doing without the specific KPIs to incentivize, or to educate people to make that decision to drive ARPU higher?

Sure. So, first, when we talk about ARPU coming in a bit more favorably than we anticipated, right? There is -- that's driven by higher tax rates across a variety of the elements of our offering. In terms of what we're doing to educate people about our value pricing and offer elements like hybrid-assisted, it's both direct outreach, right, to our customers and former customers via email communication. We also have very clear communication at the beginning of -- the start of our product and then throughout the product about the different elements of our offering. And then finally, we are using a multi-channel marketing strategy -- and both value and the feature set or elements of our service offering are highlighted extensively through both traditional media, television and radio, as well as all elements of performance digital channels. And based on where people sit as they move through the process of completing their taxes, right, we communicate different things to appropriately how it's relevant for them based on what they have done so far.

Got it. That's helpful. And then maybe just last one for Marc. I think there was some noise, especially kind of -- from an expectation perspective, originally around the 1Q Wealth Management segment income guide, which you then posted a little bit margin attrition sequentially, but nothing to write come about -- came in a lot better, the 2Q guide does seem to sort of have the same setup. So, I'm just wondering if you could give us maybe some of the puts and takes as we just think about Wealth Management segment income.

Sure. So, as we shared, we came in just shy of the high point of our guidance in Q1. We've been making certain investments to ensure the experience for financial professionals is what they deserve, and so some of that hiring took place a little bit later in the first quarter than we would have initially anticipated. There are also certain one-time expenses associated with in-person events, things of that nature. And so, from quarter-to-quarter, you'll have non-recurring expense items, as well as the timing associated with headcount plays into when we may deliver a certain profit number versus another in one quarter versus another. So, the driver is really just have to do with when that hiring takes place and when some of those one-time expenses come to play. But when you think about the full year guidance that we provided, we feel good about where we'll come in relative to that range.

Does that -- those in-person events, I guess, pick up as vaccinations increase, how should we think about?

That's correct. It's one of the things that we're really excited about. We tend to see greater engagement with our financial professionals as you can imagine during those in-person events. And there is also a really great positive knock-on effect in terms of their ability to engage with their customers once they come together as a community and share ideas and what's working across the landscape.

Got it. Perfect. Thanks for all the color. Appreciate it, guys.

Thank you. We do have a follow-up question from the line of Jackson Ader with J.P. Morgan. Your line is now open.

Thank you. I'm back. Just a couple of follow-ups. I know the proxy vote is over. But I just would like to ask any -- I don't know, any additional kind of commentary you have on whether there will or won't be some kind of engagement with the -- like the continued active investors and any kind of formal process? We saw that there was actually an announcement for the Wealth Management business, a bid for the Wealth Management business before the vote. Curious if you have heard any other interest other than the one that was made public?

Yeah. So, we don't comment on speculation. What I would say is what we've shared publicly before, which is our Board and Management team are focused on all different approaches to create value or maximize value for shareholders. And so, we'll continue to evaluate all options. In terms of engagement with shareholders, right, we will engage with all shareholders who have interest and are deeply value their perspective. And so, we'll continue our past practice of doing so.

Okay. And then, just speaking of the Board, saw the announcement this morning of the appointment of Tina Perry. Curious as to what kind of -- what expertise she will be able to bring to either the tax or the wealth business, or both?

Yeah. So, Tina joined the board months ago, and we're thrilled to have Tina joined. She has extensive experience in transforming organizations from a performance perspective and culturally. And so, as we have put together multiple businesses over the years, it's important that we drive cultural alignment within the company. And she also has extensive experience in media. And as you know, one of our largest line items, in terms of cost, is actually spending on media to support the TaxAct business. And so, we're thrilled to have her both general management experience, but also her leadership experience and cultural transformation and performance transformation and deep understanding of the media landscape.

Okay. All right. Thank you very much.

Thank you. There are no further questions. I'd now turn the call back to Chris Walters for closing remarks.

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

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.