SOURCE: Blucora

Blucora Registered Trademark Logo

November 05, 2014 16:24 ET

Blucora Reports Third Quarter Results

BELLEVUE, WA--(Marketwired - November 05, 2014) - Blucora, Inc. (NASDAQ: BCOR) today announced financial results for the third quarter ended September 30, 2014.

"Our multi-year transformation continues to progress," said Bill Ruckelshaus, President and Chief Executive Officer of Blucora. "Results for the third quarter were in line with expectations as we continue to navigate market pressures in our search and content segment. The challenges at InfoSpace underscore the importance of our diversification strategy, and the continued execution at TaxACT and Monoprice."

Summary Financial Performance: Q3 2014
($ in millions except per share amounts)
  Q3
 2014
Q3
 2013
Change
Revenues $114.9 $124.1 -7%
 Search and Content $74.4 $107.7 -31%
 Tax Preparation $2.5 $1.7 41%
 E-Commerce $38.0 $14.6 160%
       
Adjusted EBITDA $10.7 $16.6 -36%
Non-GAAP Net Income $6.5 $13.0 -50%
Non-GAAP Diluted EPS $0.15 $0.30 -50%
       
GAAP Net Loss $(2.2) $(6.5) -65%
GAAP Diluted EPS $(0.05) $(0.16) -69%
 
See reconciliation of non-GAAP to GAAP measures in table below.

Segment Information

Search and Content
Search and content segment income for the third quarter of 2014 was $12.7 million or 17 percent of segment revenue for the third quarter of 2014.

Tax Preparation
Tax preparation segment loss for the third quarter of 2014 was $1.9 million.

E-Commerce
E-Commerce segment income for the third quarter of 2014 was $3.3 million or 9 percent of segment revenue for the third quarter of 2014. 

Corporate Operating Expenses
Unallocated corporate operating expenses for the third quarter of 2014 were $3.5 million, compared to $4.0 million for the third quarter of 2013.

Fourth Quarter Outlook
For the fourth quarter of 2014, the Company expects revenues to be between $97.5 million and $108.5 million, Adjusted EBITDA to be between $2.4 million and $6.4 million, Non-GAAP Net Income (Loss) to be between ($1.5) million and $2.5 million, or ($0.04) to $0.06 per diluted share, and GAAP Net Loss to be between $9.1 million and $6.4 million, or ($0.22) to ($0.16) per share. 

Conference Call and Webcast
A conference call and live webcast will be held today at 2 p.m. Pacific Time / 5 p.m. Eastern Time during which the Company will further discuss third quarter results, and its outlook for the fourth quarter of 2014. The live webcast and supplemental materials are included in a current report on form 8-K filed today and can be accessed in the Investor Relations section of the Blucora corporate website at http://www.blucora.com. A replay of the call will also be available on our website.

About Blucora®
Blucora, Inc. (NASDAQ: BCOR) operates a diverse group of Internet businesses. Its mission is to deliver long-term value to its customers, partners and shareholders through financial discipline, operational expertise, and technology innovation. Named one of Fortune® Magazine's 100 Fastest-Growing Companies for the past two years, Blucora's online businesses reach millions of users worldwide every day. Blucora is headquartered in Bellevue, Washington. For more information, please visit www.Blucora.com. Follow and subscribe to Blucora on Twitter, LinkedIn, and YouTube.

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 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 ability to successfully integrate acquired businesses; future acquisitions; the successful execution of the Company's strategic initiatives, technology enhancements, operating plans, and marketing strategies; and the condition of our cash investments. 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,  
   2014   2013   2014   2013  
Revenues:                     
 Services revenue  $76,885   $109,491   $362,199   $392,010  
 Product revenue, net   37,970    14,630    110,408    14,630  
   Total revenues   114,855    124,121    472,607    406,640  
Operating expenses:                     
 Cost of revenues:                     
  Services cost of revenue (1)   49,754    72,935    177,280    219,274  
  Product cost of revenue   25,605    10,622    73,771    10,622  
   Total cost of revenues (2)   75,359    83,557    251,051    229,896  
Engineering and technology (2)   5,970    2,905    14,922    7,951  
Sales and marketing (2)   18,152    18,230    96,275    71,409  
General and administrative (2)   9,495    8,421    28,552    21,362  
Depreciation   1,085    697    3,278    1,738  
Amortization of intangible assets   6,118    4,184    17,463    10,521  
   Total operating expenses   116,179    117,994    411,541    342,877  
Operating income (loss)   (1,324 )  6,127    61,066    63,763  
Other loss, net (3)   (3,208 )  (13,118 )  (11,001 )  (20,427 )
Income (loss) before income taxes   (4,532 )  (6,991 )  50,065    43,336  
Income tax benefit (expense)   2,294    510    (17,579 )  (17,803 )
Net income (loss)  $(2,238 ) $(6,481 ) $32,486   $25,533  
Net income (loss) per share:                     
 Basic  $(0.05 ) $(0.16 ) $0.78   $0.62  
 Diluted  $(0.05 ) $(0.16 ) $0.75   $0.60  
Weighted average shares outstanding:                     
 Basic   41,034    41,088    41,589    41,048  
 Diluted   41,034    41,088    43,303    42,878  
(1) Includes amortization of acquired intangible assets of $1.9 million and $1.9 million for the three months ended September 30, 2014 and 2013, respectively, and $5.6 million and $5.8 million for the nine months ended September 30, 2014 and 2013, respectively.
(2) Stock-based compensation expense was allocated among the following captions (in thousands):
     
     
   Three months ended September 30,  Nine months ended September 30,
   2014  2013  2014  2013
Cost of revenues  $101  $94  $373  $541
Engineering and technology   568   370   1,312   942
Sales and marketing   74   649   1,715   1,652
General and administrative   1,865   2,139   5,574   5,355
 Total stock-based compensation expense  $2,608  $3,252  $8,974  $8,490
(3) Other loss, net was allocated among the following captions (in thousands):
       
       
   Three months ended September 30,   Nine months ended September 30,  
   2014   2013   2014   2013  
Interest income  $(71 ) $(42 ) $(267 ) $(206 )
Interest expense   2,706    2,669    8,485    6,707  
Amortization of debt issuance costs   288    258    853    841  
Accretion of debt discounts   931    862    2,753    1,972  
Loss on debt extinguishment and modification expense   -    1,593    -    1,593  
Loss on derivative instrument   -    3,956    -    5,931  
Impairment of equity investment in privately-held company   -    3,711    -    3,711  
Decrease in pre-acquisition liability   (665 )  -    (665 )  -  
Other   19    111    (158 )  (122 )
 Other loss, net  $3,208   $13,118   $11,001   $20,427  
  
  
  
Blucora, Inc. 
Preliminary Condensed Consolidated Balance Sheets 
(Unaudited) 
(Amounts in thousands) 
          
   September 30,
 2014
  December 31,
 2013
 
ASSETS           
Current assets:           
 Cash and cash equivalents  $60,194   $130,225  
 Available-for-sale investments   220,200    203,480  
 Accounts receivable, net   31,806    48,081  
 Other receivables   4,143    8,292  
 Inventories   27,759    28,826  
 Prepaid expenses and other current assets, net   8,967    9,774  
  Total current assets   353,069    428,678  
Property and equipment, net   16,347    16,108  
Goodwill   364,054    348,957  
Other intangible assets, net   180,330    178,064  
Other long-term assets   5,274    6,223  
Total assets  $919,074   $978,030  
LIABILITIES AND STOCKHOLDERS' EQUITY           
Current liabilities:           
 Accounts payable  $42,886   $61,268  
 Accrued expenses and other current liabilities   18,699    31,109  
 Deferred revenue   6,945    7,510  
 Short-term portion of long-term debt, net   7,917    7,903  
 Convertible senior notes, net (1)   -    181,583  
  Total current liabilities   76,447    289,373  
Long-term liabilities:           
 Long-term debt, net   55,261    113,193  
 Convertible senior notes, net (1)   184,254    -  
 Deferred tax liability, net   41,341    56,861  
 Deferred revenue   2,331    1,814  
 Other long-term liabilities   2,610    2,719  
  Total long-term liabilities   285,797    174,587  
  Total liabilities   362,244    463,960  
            
Stockholders' equity:           
 Common stock   4    4  
 Additional paid-in capital   1,476,148    1,466,043  
 Accumulated deficit   (919,491 )  (951,977 )
 Accumulated other comprehensive income   169    -  
  Total stockholders' equity   556,830    514,070  
Total liabilities and stockholders' equity  $919,074   $978,030  
(1) The convertibility of the Notes is determined at the end of each reporting period. If the Notes are determined to be convertible, they remain convertible until the end of the subsequent quarter and are classified in "Current liabilities"; otherwise, they are classified in "Long-term liabilities." Depending upon the price of our common stock or the trading price of the Notes within the reporting period, the Notes could be convertible during one reporting period but not convertible during a comparable reporting period.
  
  
  
Blucora, Inc. 
Preliminary Condensed Consolidated Statements of Cash Flows 
(Unaudited) 
(Amounts in thousands) 
  
   Nine months ended September 30,  
   2014   2013  
Operating Activities:         
 Net income  $32,486   $25,533  
 Adjustments to reconcile net income to net cash provided by operating activities:           
  Stock-based compensation   8,974    8,490  
  Depreciation and amortization of intangible assets   27,298    19,413  
  Excess tax benefits from stock-based award activity   (29,801 )  (24,596 )
  Deferred income taxes   (15,621 )  (8,209 )
  Amortization of premium on investments, net   3,095    2,154  
  Amortization of debt issuance costs   853    841  
  Accretion of debt discounts   2,753    1,972  
  Loss on debt extinguishment and modification expense   -    1,593  
  Loss on derivative instrument   -    5,931  
  Impairment loss on equity investment in privately-held company   -    3,711  
  Other   72    608  
 Cash provided (used) by changes in operating assets and liabilities:           
  Accounts receivable   16,212    (8,756 )
  Other receivables   4,134    1,090  
  Inventories   1,067    900  
  Prepaid expenses and other current assets   849    6,694  
  Other long-term assets   43    (2,296 )
  Accounts payable   (18,382 )  1,873  
  Deferred revenue   (48 )  2,563  
  Accrued expenses and other current and long-term liabilities   17,174    27,176  
   Net cash provided by operating activities   51,158    66,685  
Investing Activities:           
  Business acquisitions, net of cash acquired   (44,927 )  (180,500 )
  Purchases of property and equipment   (4,247 )  (3,066 )
  Change in restricted cash   -    2,491  
  Equity investment in privately-held company   -    (4,000 )
  Proceeds from sales of investments   26,620    25,812  
  Proceeds from maturities of investments   195,296    150,277  
  Purchases of investments   (237,063 )  (234,771 )
   Net cash used by investing activities   (64,321 )  (243,757 )
Financing Activities:           
  Proceeds from issuance of convertible notes, net of debt issuance costs of $6,432   -    194,818  
  Proceeds from credit facilities   4,000    -  
  Repayment of credit facilities   (62,000 )  (10,000 )
  Debt issuance costs on credit facility   -    (28 )
  Stock repurchases   (29,923 )  (3,525 )
  Excess tax benefits from stock-based award activity   29,801    24,596  
  Proceeds from stock option exercises   2,447    1,700  
  Proceeds from issuance of stock through employee stock purchase plan   1,376    1,065  
  Tax payments from shares withheld upon vesting of restricted stock units   (2,569 )  (2,011 )
   Net cash provided (used) by financing activities   (56,868 )  206,615  
Net increase (decrease) in cash and cash equivalents   (70,031 )  29,543  
Cash and cash equivalents, beginning of period   130,225    68,278  
Cash and cash equivalents, end of period  $60,194   $97,821  
  
  
  
Blucora, Inc. 
Preliminary Segment Information 
(Unaudited) 
(Amounts in thousands) 
  
  Three months ended September 30,   Nine months ended September 30,  
  2014   2013   2014   2013  
Revenues:                
 Search and Content $74,416   $107,742   $260,999   $302,840  
 Tax Preparation  2,469    1,749    101,200    89,170  
 E-Commerce  37,970    14,630    110,408    14,630  
  Total revenues  114,855    124,121    472,607    406,640  
Operating income (loss):                    
 Search and Content  12,709    21,319    45,971    57,501  
 Tax Preparation  (1,859 )  (1,605 )  52,754    43,617  
 E-Commerce  3,336    906    9,192    906  
 Corporate-level activity (1)  (15,510 )  (14,493 )  (46,851 )  (38,261 )
  Total operating income (loss)  (1,324 )  6,127    61,066    63,763  
Other loss, net  (3,208 )  (13,118 )  (11,001 )  (20,427 )
Income tax benefit (expense)  2,294    510    (17,579 )  (17,803 )
Net income (loss) $(2,238 ) $(6,481 ) $32,486   $25,533  
(1) Corporate-level activity included the following (in thousands):
 
   Three months ended September 30,  Nine months ended September 30,
   2014  2013  2014  2013
Operating expenses  $3,524  $4,025  $10,579  $10,358
Stock-based compensation   2,608   3,252   8,974   8,490
Depreciation   1,385   1,126   4,194   3,119
Amortization of intangible assets   7,993   6,090   23,104   16,294
 Total corporate-level activity  $15,510  $14,493  $46,851  $38,261
 
 
 
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,
   2014   2013   2014  2013
Net income (loss) (2)  $(2,238 ) $(6,481 ) $32,486  $25,533
Stock-based compensation   2,608    3,252    8,974   8,490
Depreciation and amortization of intangible assets   9,378    7,216    27,298   19,413
Other loss, net (3)   3,208    13,118    11,001   20,427
Income tax (benefit) expense   (2,294 )  (510 )  17,579   17,803
Adjusted EBITDA  $10,662   $16,595   $97,338  $91,666
  
  
  
Preliminary Non-GAAP Net Income Reconciliation(1) 
(Unaudited) 
(Amounts in thousands, except per share amounts) 
  
   Three months ended September 30,   Nine months ended September 30,  
   2014   2013   2014   2013  
Net income (loss) (2)  $(2,238 ) $(6,481 ) $32,486   $25,533  
Stock-based compensation   2,608    3,252    8,974    8,490  
Amortization of acquired intangible assets   7,993    6,090    23,104    16,294  
Accretion of debt discount on Convertible Senior Notes   907    843    2,671    1,816  
Loss on debt extinguishment and modification expense   -    1,593    -    1,593  
Loss on derivative instrument   -    3,956    -    5,931  
Impairment of equity investment in privately-held company   -    3,711    -    3,711  
Decrease in non-cash pre-acquisition liability   (665 )  -    (665 )  -  
Cash tax impact of adjustments to GAAP net income   (44 )  (1 )  (295 )  (181 )
Non-cash income tax (benefit) expense (1)   (2,017 )  7    14,180    16,412  
Non-GAAP net income  $6,544   $12,970   $80,455   $79,599  
                      
Per diluted share:                     
Net income (loss)  $(0.05 ) $(0.16 ) $0.75   $0.60  
Stock-based compensation   0.06    0.08    0.21    0.20  
Amortization of acquired intangible assets   0.19    0.14    0.53    0.38  
Accretion of debt discount on Convertible Senior Notes   0.02    0.02    0.06    0.04  
Loss on debt extinguishment and modification expense   -    0.04    -    0.04  
Loss on derivative instrument   -    0.09    -    0.13  
Decrease in non-cash pre-acquisition liability   (0.02 )  -    (0.01 )  -  
Impairment of equity investment in privately-held company   -    0.09    -    0.09  
Cash tax impact of adjustments to GAAP net income   (0.00 )  (0.00 )  (0.01 )  (0.00 )
Non-cash income tax (benefit) expense   (0.05 )  0.00    0.33    0.38  
Non-GAAP net income per share  $0.15   $0.30   $1.86   $1.86  
Weighted average shares outstanding used in computing diluted non-GAAP net income per share and its components   42,305    43,142    43,303    42,878  
  
  
  
Preliminary Adjusted EBITDA Reconciliation for Forward-Looking Guidance 
(Amounts in thousands) 
  
   Ranges for the three months ending  
   December 31, 2014  
Net loss  $(9,100 ) $(6,400 )
Stock-based compensation   3,200    3,000  
Depreciation and amortization of intangible assets   9,500    9,400  
Other loss, net (3)   3,900    3,900  
Income tax benefit   (5,100 )  (3,500 )
Adjusted EBITDA  $2,400   $6,400  
  
  
  
Preliminary Non-GAAP Net Income Reconciliation for Forward-Looking Guidance 
(Amounts in thousands) 
  
   Ranges for the three months ending  
   December 31, 2014  
Net loss  $(9,100 ) $(6,400 )
Stock-based compensation   3,200    3,000  
Amortization of acquired intangible assets   8,000    8,000  
Accretion of debt discount on Convertible Senior Notes   900    900  
Non-cash income tax benefit   (4,500 )  (3,000 )
Non-GAAP net income (loss)  $(1,500 ) $2,500  

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

(1) We define Adjusted EBITDA as net income, determined in accordance with the accounting principles generally accepted in the United States of America ("GAAP"), excluding the effects of income taxes, depreciation, amortization of intangible assets, stock-based compensation, and other loss, net (as described in note (3) below).

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. 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 differently for this report than we have defined it in the past, due to adjustments recorded in other loss, net that resulted from finalizing Monoprice's 2013 federal and state tax returns in the third quarter of 2014. For this report, we define non-GAAP net income as net income, determined in accordance with GAAP, excluding the effects of stock-based compensation, amortization of acquired intangible assets, accretion of debt discount on the Convertible Senior Notes, loss on debt extinguishment and modification expense, loss on derivative instrument, other-than-temporary impairment loss on equity investments, changes in non-cash pre-acquisition liabilities, 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 consist primarily of U.S. federal net operating losses. The majority of these deferred tax assets will expire, if unutilized, between 2020 and 2024.

We believe that non-GAAP net income and non-GAAP net income 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 and non-GAAP net income per share are common measures used by investors and analysts to evaluate our performance and the valuation of our business. Non-GAAP net income 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. 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, loss on debt extinguishment and modification expense, loss on derivative instrument, other-than-temporary impairment loss on equity investments, and adjustments to contingent liabilities related to business combinations.

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