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Blucora Announces Strong Third Quarter Results

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BELLEVUE, Wash.--(BUSINESS WIRE)--

Blucora, Inc. (NASDAQ: BCOR) today announced financial results for the third quarter ended September 30, 2012.

“I am pleased to report Blucora had another quarter of strong performance, driven by great results from our online search business,” said Bill Ruckelshaus, President and Chief Executive Officer of Blucora. “I am also pleased with the progress our tax preparation business has made during the offseason to improve the core product and position for long-term growth.”

“Overall, the strategies in place at Blucora are proving out and our teams are executing well. We are pleased with our progress and optimistic about our future plans,” Ruckelshaus added.

Summary Financial Performance: 3Q 2012
($ in millions except per share amounts)
  Q3 2012   Q3 2011   Growth
Revenue $ 92.9 $ 56.3 65 %
Search $ 91.4 $ 56.3 62 %
Tax Preparation $ 1.5 N/A N/A
 
Adjusted EBITDA $ 12.1 $ 8.5 42 %
Non-GAAP Net Income $ 10.4 $ 6.8 52 %
Non-GAAP Diluted EPS $ 0.25 $ 0.17 47 %
 
Net Income (Loss) $ (2.4)* $ 2.1 N/A
GAAP Diluted Income (Loss) Per Share $(0.06)* $ 0.05 N/A
 
*Includes a $4.3 million non-cash loss on derivative instrument.
See reconciliation of non-GAAP to GAAP measures below.
 

Segment Information

Search

Search revenue for the third quarter of 2012 was $91.4 million, up 62 percent from the third quarter of 2011. Search revenue reflects strong growth from search distribution, which increased 78 percent over the prior year. Search segment income was $16.4 million, up 51 percent over the third quarter of 2011.

Tax Preparation

Tax Preparation revenue for the third quarter of 2012 was $1.5 million, and segment loss was $1.6 million. Tax preparation typically posts a seasonal loss in the third quarter when there is little revenue from its tax business.

Corporate Operating Expenses

Unallocated corporate operating expenses for the third quarter of 2012 were $2.7 million.

Fourth Quarter Outlook

For the fourth quarter of 2012, the Company expects revenues to be between $92.0 million and $95.0 million, Adjusted EBITDA to be between $10.0 million and $11.0 million, Non-GAAP Net Income to be between $7.7 million and $8.9 million, or $0.18 to 0.21 per diluted share, and Net Income to be between breakeven and $1.0 million, or $0.00 to $0.02 per diluted share. The Company's forward-looking guidance does not reflect potential gains or losses from derivative instruments.

Conference Call and Webcast

A conference call 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 including tax preparation segment guidance for the first half of 2013. The live webcast and supplemental materials are included in a current report on form 8-K 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 operates two leading Internet businesses. Our InfoSpace business provides online search and monetization solutions to a network of more than 100 partners globally. Through TaxACT, we provide online tax preparation solutions to consumers and professional preparers. The Blucora team brings decades of experience operating and investing in desktop, online, and mobile businesses. We are passionate about the power of the Internet to improve the lives of consumers, and our businesses operate at the forefront of digital migration trends in their respective markets. More information about Blucora may be found at www.blucora.com. Follow and subscribe to us 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, 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 Annual Report on Form 10-K 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 Comprehensive Income (Loss) (1)
(Unaudited)
(Amounts in thousands, except per share data)
       
Three months ended Nine months ended
September 30, September 30, September 30, September 30,
  2012     2011     2012     2011  
Revenues $ 92,870 $ 56,257 $ 309,449 $ 162,199
 
Cost of sales (includes amortization of acquired intangible assets of $2,014, $518, $5,606, and $2,248) (2) 69,973 38,755 193,747 108,008
       
Gross profit 22,897 17,502 115,702 54,191
 
Expenses and other loss:
Engineering and technology (2) 2,410 1,806 7,431 5,254
Sales and marketing (2) 7,741 4,888 36,053 16,757
General and administrative (2) 5,283 6,513 21,705 16,643
Depreciation 560 475 1,627 1,689
Amortization of intangible assets 3,169 - 8,450 -
Other loss, net (3)   5,196     456     7,681     274  
 
Total expenses and other loss   24,359     14,138     82,947     40,617  
 
Income (loss) from continuing operations before income taxes (1,462 ) 3,364 32,755 13,574
 
Income tax expense   (936 )   (1,289 )   (14,049 )   (4,927 )
 
Income (loss) from continuing operations   (2,398 )   2,075     18,706     8,647  
 
Discontinued operations: (1)
Loss from discontinued operations, net of taxes (2) - - - (2,253 )
Loss on sale of discontinued operations, net of taxes   -     -     -     (7,674 )
Net income (loss) $ (2,398 ) $ 2,075   $ 18,706   $ (1,280 )
 
Earnings per share - Basic
Income (loss) from continuing operations $ (0.06 ) $ 0.05 $ 0.47 $ 0.23
Loss from discontinued operations - - - (0.06 )
Loss on sale of discontinued operations   -     -     -     (0.20 )
Net income (loss) per share - Basic $ (0.06 ) $ 0.05   $ 0.47   $ (0.03 )
 
Earnings per share - Diluted
Income (loss) from continuing operations $ (0.06 ) $ 0.05 $ 0.45 $ 0.23
Loss from discontinued operations - - - (0.06 )
Loss on sale of discontinued operations   -     -     -     (0.20 )
Net income (loss) per share - Diluted $ (0.06 ) $ 0.05   $ 0.45   $ (0.03 )
 
Weighted average shares outstanding used in

computing basic income (loss) per share

  40,511     38,568     40,108     37,451  
Weighted average shares outstanding used in

computing diluted income (loss) per share

  40,511     39,158     41,425     38,131  
 

(1) In the nine months ended September 30, 2011, the Company completed the sale of its Mercantila e-commerce business.  The operating results of that business have been presented as discontinued operations for all periods presented.  Income taxes related to discontinued operations were a benefit of $1.3 million for the nine months ended September 30, 2011.  Income taxes related to discontinued operations were $0.6 million and $0.7 million for the three and nine months ended September 30, 2010, respectively.  A loss, net of an income tax benefit of $5.1 million, on the sale of the Mercantila business was recorded for the nine months ended September 30, 2011.  Revenue, operating expenses and income taxes, loss from discontinued operations and the loss on sale of these discontinued operations are presented below (in thousands):

 
Three months ended Nine months ended
September 30, September 30, September 30, September 30,
E-Commerce   2012     2011     2012     2011  
Revenue $ - $ - $ 16,894
Operating expenses and income taxes   -     -       19,147  
Loss from discontinued operations, net of taxes $ -   $ -   $ -   $ (2,253 )
Loss on sale of discontinued operations, net of taxes $ -   $ -   $ -   $ (7,674 )
 

(2) In the nine months ended September 30, 2012, $5.2 million in stock-based compensation expense was recorded in association with the modification of the terms of a warrant and the vesting of a non-employee performance-based equity award, which were both triggered by the acquisition of the TaxACT business, and the related expense was allocated to general and administrative expense.  Stock-based compensation expense for the three and nine months ended September 30, 2012 and 2011 is allocated among the following captions (in thousands):

 
Three months ended Nine months ended
September 30, September 30, September 30, September 30,
Stock-Based Compensation   2012     2011     2012     2011  
Cost of sales $ 183 $ 37 $ 331 $ 234
Engineering and technology 332 251 894 684
Sales and marketing 587 177 1,389 829
General and administrative 1,093 2,584 8,309 4,673
Discontinued operations   -     -     -     (159 )
Total stock-based compensation expense $ 2,195   $ 3,049   $ 10,923   $ 6,261  
 

(3) Other loss, net for the three and nine months ended September 30, 2012 and 2011 is allocated among the following captions (in thousands):

 
Three months ended Nine months ended
September 30, September 30, September 30, September 30,
  2012     2011     2012     2011  
Other Loss, Net
Interest expense 794 - 2,647 -
Amortization of debt issuance costs and accretion of debt discount 117 - 1,040 -
Loss on derivative instrument 4,335 - 4,274 -
Gain on contingency resolution - - - (1,500 )
Increase in fair value of earn-out contingent liability - 500 - 2,000
Other   (50 )   (44 )   (280 )   (226 )
Total other loss, net $ 5,196   $ 456   $ 7,681   $ 274  
 
Blucora, Inc.
Preliminary Condensed Consolidated Balance Sheets
(Unaudited)
(Amounts in thousands)
   
September 30, December 31,
  2012     2011  
ASSETS
 
Current assets:
Cash and cash equivalents $ 96,407 $ 81,897
Short-term investments, available-for-sale 54,010 211,654
Accounts receivable, net 35,243 25,019
Other receivables, net 1,274 542
Prepaid expenses and other current assets, net   4,514     1,958  
 
Total current assets 191,448 321,070
 
Property and equipment, net 6,587 5,277
Goodwill 230,980 44,815
Other intangible assets, net 137,959 1,315
Deferred tax asset, net 19,369 19,102
Other long-term assets 4,382 3,560
 
Total assets $ 590,725   $ 395,139  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
Current liabilities:
Accounts payable $ 36,954 $ 28,947
Accrued expenses and other current liabilities 12,372 10,250
Short-term portion of long-term debt, net of discount of $142 2,233 -
Derivative instruments   10,951     -  
 
Total current liabilities 62,510 39,197
 
Long-term liabilities:
Long-term debt, net of discount of $517 71,604 -
Deferred tax liability 48,149 21
Other long-term liabilities   2,205     816  
 
Total long-term liabilities   121,958     837  
 
Total liabilities 184,468 40,034
 
Stockholders' equity:
Common stock 4 4
Additional paid-in capital 1,386,741 1,353,971
Accumulated deficit (980,196 ) (998,902 )
Accumulated other comprehensive income (loss)   (292 )   32  
 
Total stockholders' equity   406,257     355,105  
 
Total liabilities and stockholders' equity $ 590,725   $ 395,139  
 
Blucora, Inc.
Preliminary Condensed Consolidated Statements of Cash Flows
(Unaudited)
(Amounts in thousands)
 
Nine months ended
September 30,   September 30,
  2012     2011  
Operating activities:
Net income (loss) $ 18,706 $ (1,280 )
Adjustments to reconcile net income (loss) to net cash provided by operating activities of continuing operations:
Loss on sale of discontinued operations - 7,674
Loss from discontinued operations - 2,253
Depreciation and amortization of intangible assets 16,950 6,190
Stock-based compensation 6,637 4,488
Warrant-related stock-based compensation 4,286 1,932
Excess tax benefits from stock-based award activity (20,882 ) -
Deferred income taxes (7,398 ) 2
Unrealized amortization of premium or accretion of discount on investments, net (335 ) 285
Amortization of debt origination costs 746 -
Accretion of debt discount 294 -
Loss on derivative instrument 4,274 -
Earn-out contingent liability adjustments - 2,000
Gain on resolution of contingent liability - (1,500 )
Other (21 ) (8 )
Changes in operating assets and liabilities: -
Accounts receivable (907 ) (882 )
Other receivables 504 (1,118 )
Prepaid expenses and other current assets 705 849
Deferred tax assets and other long-term assets (612 ) (150 )
Accounts payable (2,344 ) 5,981
Accrued expenses and other current and long-term liabilities   18,357     (13,660 )
Net cash provided by operating activities of continuing operations 38,960 13,056
 
Investing activities:
Business acquisition, net of cash acquired (279,386 ) -
Purchases of property and equipment (2,776 ) (2,507 )
Change in restricted cash 168 409
Proceeds from sales of investments 184,934 -
Proceeds from maturities of investments 32,125 83,141
Purchases of investments   (59,076 )   (204,777 )
Net cash used by investing activities of continuing operations (124,011 ) (123,734 )
 
Financing activities:
Proceeds from loan, net of debt issuance costs of $2,343 and debt discount of $953 96,704 -
Proceeds from sale of common stock - 7,000
Repayment of debt (25,504 ) -
Excess tax benefits from stock-based award activity 20,882 -
Proceeds from stock option exercises and issuance of stock through employee stock purchase plan 8,413 16,664
Tax payments from shares withheld upon vesting of restricted stock units (934 ) (1,388 )
Earn-out payments for business acquisition - (423 )
Repayment of capital lease obligation   -     (221 )
Net cash provided by financing activities of continuing operations 99,561 21,632
 
Discontinued operations:
Net cash used by operating activities attributable to discontinued operations - (6,156 )
Net cash used by investing activities attributable to discontinued operations   -     (638 )
Net cash used by discontinued operations - (6,794 )
 
 
Net increase (decrease) in cash and cash equivalents 14,510 (95,840 )
 
Cash and cash equivalents:
Beginning of period   81,897     155,645  
End of period $ 96,407   $ 59,805  
 
Blucora, Inc.
Preliminary Segment Information
(Unaudited)
(Amounts in thousands)
         
 
Three months ended Nine months ended
September 30, September 30, September 30, September 30,
  2012     2011     2012     2011  
Search:
Revenue $ 91,408 $ 56,257 $ 248,511 $ 162,199
Cost of revenue (1) 65,203 36,329 176,545 99,031
Operating expenses   9,849     9,119     27,159     29,730  
Search segment income 16,356 10,809 44,807 33,438
Search segment margin 18 % 19 % 18 % 21 %
 
Tax Preparation:
Revenue 1,462 - 60,938 -
Cost of revenue (2) 292 - 4,410 -
Operating expenses   2,731     -     24,000     -  
Tax Preparation segment income (1,561 ) - 32,528 -
Tax Preparation segment margin -107 % 0 % 53 % 0 %
 
Total segment:
Total revenue 92,870 56,257 309,449 162,199
Total cost of revenue 65,495 36,329 180,955 99,031
Total segment operating expenses   12,580     9,119     51,159     29,730  
Total segment income 14,795 10,809 77,335 33,438
Total segment margin 16 % 19 % 25 % 21 %
 
Corporate:
Operating expense 2,695 2,307 9,026 6,980
Stock-based compensation 2,195 3,049 10,923 6,420
Depreciation 988 1,115 2,895 3,942
Amortization of intangible assets 5,183 518 14,055 2,248
Other loss, net 5,196 456 7,681 274
Income tax expense 936 1,289 14,049 4,927
Discontinued operations, net of taxes   -     -     -     9,927  
Total corporate 17,193 8,734 58,629 34,718
       
Net income (loss) $ (2,398 ) $ 2,075   $ 18,706   $ (1,280 )
 

(1) Amounts do not include amortization of acquired technology and costs associated with the operation of the Company's data centers that serve its search business, including depreciation, personnel expenses (including stock-based compensation expense), energy, and bandwidth costs.

 

(2) Amounts do not include amortization of acquired technology and costs associated with the operation of the Company's data center that serves its tax preparation business, including depreciation, personnel expenses, (including stock-based compensation expense), energy, and bandwidth costs, and personnel costs associated with customer service.

 
Blucora, Inc.
Reconciliations of Non-GAAP Financial Measures to the Nearest Comparable GAAP Measure
Preliminary Adjusted EBITDA Reconciliation (1)
(Unaudited)
(Amounts in thousands)
         
Three months ended Nine months ended
September 30, September 30,   September 30, September 30,
  2012     2011     2012     2011  
Net income (loss) (2) $ (2,398 ) $ 2,075 $ 18,706 $ (1,280 )
Loss from discontinued operations - - - 9,927
Depreciation and amortization of intangible assets 6,171 1,633 16,950 6,190
Stock-based compensation 2,195 3,049 10,923 6,420
Other loss, net (3) 5,196 456 7,681 274
Income tax expense   936     1,289     14,049     4,927  
Adjusted EBITDA (4) $ 12,100   $ 8,502   $ 68,309   $ 26,458  
 
 
Blucora, Inc.
Reconciliations of Non-GAAP Financial Measures to the Nearest Comparable GAAP Measure
Preliminary Non-GAAP Net Income Reconciliation (1)
(Unaudited)
(Amounts in thousands, except per share amounts)
 
Three months ended Nine months ended
September 30, September 30,   September 30, September 30,
  2012     2011     2012     2011  
Net income (loss) (2) $ (2,398 ) $ 2,075 $ 18,706 $ (1,280 )
Loss from discontinued operations   -     -     -     9,927  
Income from continuing operations (2) (2,398 ) 2,075 18,706 8,647
Stock-based compensation 2,195 3,049 10,923 6,420
Amortization of acquired intangible assets 5,183 518 14,055 2,248
Loss on derivatives 4,335 - 4,274 -
Cash tax impact of GAAP adjustments (15 ) (18 ) (102 ) (60 )
Non-cash income tax expense from continuing operations (1)   1,121     1,221     12,899     4,613  
Non-GAAP net income (4) $ 10,421   $ 6,845   $ 60,755   $ 21,868  
 
Per share amounts
Income (loss) from continuing operations- diluted (0.06 ) 0.05 0.45 0.23
Stock-based compensation - diluted 0.05 0.08 0.27 0.16
Amortization of acquired intangible assets - diluted 0.12 0.01 0.34 0.06
Loss on derivatives - diluted 0.11 - 0.10 -
Cash tax impact of GAAP adjustments - diluted (0.00 ) (0.00 ) (0.00 ) (0.00 )
Non-cash income taxes per share - diluted   0.03     0.03     0.31     0.12  
Non-GAAP net income per share - diluted $ 0.25   $ 0.17   $ 1.47   $ 0.57  
Weighted average shares outstanding used in computing diluted non-GAAP income per share and its components   42,048     39,158     41,425     38,131  
 
 
Preliminary Adjusted EBITDA Reconciliation for Forward-Looking Guidance
(Amounts in thousands)
 
Ranges for the three months ending
December 31, 2012
Net income - 1,000
Depreciation and amortization of acquired intangible assets 6,300 6,100
Stock-based compensation 2,500 2,200
Other loss, net (4) 1,200 1,000
Income tax expense   -     700  
Adjusted EBITDA $ 10,000   $ 11,000  
 
 
Preliminary Non-GAAP Net Income Reconciliation for Forward-Looking Guidance
(Amounts in thousands)
 
Ranges for the three months ending
December 31, 2012
Net income - 1,000
Stock-based compensation 2,500 2,200
Amortization of acquired intangible assets 5,200 5,100
Non-cash income tax expense from continuing operations   -     600  
Non-GAAP net income $ 7,700   $ 8,900  
 

(1) Blucora's Adjusted EBITDA is calculated by adjusting net income (loss) determined in accordance with generally accepted accounting principles ("GAAP") to exclude the effects of loss from discontinued operations (which includes loss from discontinued operations, net of taxes, and loss on sale of discontinued operations, net of taxes), income taxes, depreciation, amortization of acquired intangible assets, stock-based compensation expense, and other loss ,net (which includes such items as interest expense, interest income, derivative instrument gains or losses, foreign currency gains or losses, gains or losses from the disposal of assets, adjustments to the fair values of contingent liabilities related to business combinations, and gains on resolutions of contingencies), as detailed above.  Blucora's management believes that Adjusted EBITDA provides meaningful supplemental information regarding the Company's performance by excluding certain expenses and gains that management believes are not indicative of its core business operating results.  Blucora uses this non-GAAP financial measure for internal management purposes, when publicly providing guidance on possible future results, and as a means to evaluate period-to-period comparisons.  Blucora believes that Adjusted EBITDA is a common measure used by investors and analysts to evaluate its performance, that it provides a more complete understanding of the results of operations and trends affecting the Company's business when viewed together with GAAP results, and that management and investors benefit from referring to this non-GAAP financial measure.  

 

 

Blucora's Non-GAAP net income and Non-GAAP earnings per share is calculated by adjusting GAAP net income (loss) to exclude the effects of discontinued operations, net of taxes (which includes loss from discontinued operations, net of taxes, and loss on sale of discontinued operations, net of taxes), loss from the sale of discontinued operations, net of taxes, stock-based compensation expense, amortization of  acquired intangible assets, gain or loss on derivatives, the cash tax impact of those adjustments to GAAP net income, and non-cash portion of income tax expense from continuing operations, as detailed in the accompanying table to the preliminary condensed consolidated financial statements (unaudited).  The Company excludes the non-cash portion of income tax expense because of its ability to offset a substantial portion of its cash tax liabilities by using these deferred tax assets.  The majority of these deferred tax assets will expire if unutilized in 2020.

 

 

Blucora's management believes that non-GAAP net income and non-GAAP earnings per share provide meaningful supplemental information to management, investors and analysts regarding the Company's performance and the valuation of its business by excluding items in the statement of operations that management does not consider part of the Company's ongoing operations or have not been, or are not expected to be, settled in cash.  Additionally, Blucora's management believes that non-GAAP net income and non-GAAP earnings per share are common measures used by investors and analysts to evaluate the Company's performance and the valuation of its business.

 

 

Adjusted EBITDA, non-GAAP net income and non-GAAP earnings per share should be evaluated in light of the Company's 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.

 

(2)  As presented in the Preliminary Condensed Consolidated Statements of Operations (unaudited).

(3)  Other loss, net includes such items as interest expense, interest income, derivative instrument gains or losses, foreign currency gains or losses, gains or losses from the disposal of assets, adjustments to the fair values of contingent liabilities related to business combinations, and gains on resolutions of contingencies.

(4)  Other loss, net, primarily consists of interest expense, interest income, foreign currency gains or losses, and gains or losses from the disposal of assets, and the Company's forward-looking guidance does not reflect potential gains or losses from derivative instruments.

Blucora, Inc.
Stacy Ybarra, 425-709-8127
stacy.ybarra@blucora.com

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