Blucora Reports Strong Second Quarter Results

Blucora, Inc. (NASDAQ: BCOR) today announced financial results for the second quarter ended June 30, 2013.

“We are pleased to announce solid results across both of our businesses in the first half of 2013,” said Bill Ruckelshaus, President and Chief Executive Officer of Blucora. “InfoSpace continues to expand its distribution network and drive growth with existing partners. TaxACT recorded market share gains in tax year 2012 with enhanced core offerings and new services complementary to the filing process.”
 
Summary Financial Performance: 2Q 2013

($ in millions except per share amounts)
      Q2 2013       Q2 2012       Growth
Revenues $ 117.2       $ 100.9       16 %
Search $ 94.5 $ 81.8 16 %
Tax Preparation $ 22.7 $ 19.1 19 %
 
Adjusted EBITDA $ 29.2 $ 24.5 19 %
Non-GAAP Net Income $ 24.6 $ 21.8 13 %
Non-GAAP Diluted EPS $ 0.58 $ 0.53 9 %
 
Net Income

$

8.4

(1)

 

$

9.7

(2)

 
-13 %
GAAP Diluted EPS

$

0.20

(1)

 
$ 0.23 -13 %
 
(1) Includes $2.3 million non-cash loss on derivative instrument.
(2) Includes $0.3 million non-cash gain on derivative instrument.
 
See reconciliation of non-GAAP to GAAP measures below.
 

Segment Information

Search

Segment revenue for the second quarter of 2013 reflects strong growth from search distribution and in our owned and operated properties, up 12 percent and 46 percent, respectively, over the second quarter of 2012. Segment income for the second quarter of 2013 was $17.9 million, up 19 percent over the second quarter of 2012.

Tax Preparation

Segment income for the second quarter of 2013 was $14.4 million, up 21 percent over the second quarter of 2012, reflecting a strong end to the tax season.

Corporate Operating Expenses

Unallocated corporate operating expenses for the second quarter of 2013 were $3.1 million.

Monoprice Acquisition

Today, the Company announced that it has entered into a definitive agreement to acquire Monoprice, a rapidly growing online provider of self-branded consumer electronics and accessories. The all-cash transaction, valued at $180 million, is subject to satisfaction of customary closing conditions and is expected to close in the third quarter of 2013. For further information, see the acquisition press release issued by the Company today.

Third Quarter Outlook

For the third quarter of 2013, the Company expects revenues to be between $93.5 million and $97.5 million, Adjusted EBITDA to be between $10.0 million and $11.5 million, Non-GAAP Net Income to be between $6.0 million and $7.4 million, or $0.14 to $0.17 per diluted share, and Net Loss to be between $1.8 million and $800 thousand, or $(0.04) to $(0.02) per share. The Company's forward-looking guidance does not reflect the operating results of the Monoprice acquisition nor potential gains or losses from derivative instruments.

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 second quarter results, the Monoprice transaction and its outlook for the third quarter of 2013 , including tax segment guidance for the third quarter, search segment guidance for the third quarter 2013, and search segment expectations for 2013. The supplemental materials are included in a current report on form 8-K filed today and may 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 for one year and may be accessed under the “Events & Presentations” section of the Investor Center. You may also listen to the conference call audio on the Blucora YouTube Channel at www.YouTube.com/Blucora.

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 digitally-enabled businesses. 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 complete and 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-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 (1)
(Unaudited)
(Amounts in thousands, except per share data)
       
Three months ended Six months ended
June 30, June 30, June 30, June 30,
  2013     2012     2013     2012  
Revenues $ 117,181 $ 100,883 $ 282,519 $ 216,579
 

Cost of sales (includes amortization of acquired intangible assets

of $1,927, $2,080, $3,867 and $3,591) (1)
69,980 64,227 148,655 123,774
       
Gross profit 47,201 36,656 133,864 92,805
 
Expenses and other loss, net:
Engineering and technology (1) 2,508 2,448 5,046 5,021
Sales and marketing (1) 14,067 8,869 50,863 28,312
General and administrative (1) 6,557 5,356 12,941 16,422
Depreciation 524 532 1,041 1,067
Amortization of intangible assets 3,168 3,168 6,337 5,281
Other loss, net (2)   6,304     930     7,309     2,485  
 
Total expenses and other loss, net   33,128     21,303     83,537     58,588  
 
Income before income taxes 14,073 15,353 50,327 34,217
 
Income tax expense (5,667 ) (5,655 ) (18,313 ) (13,113 )
       
Net income $ 8,406   $ 9,698   $ 32,014   $ 21,104  
 
Net income per share - Basic $ 0.20   $ 0.24   $ 0.78   $ 0.53  
 
Net income per share - Diluted (3) $ 0.20   $ 0.23   $ 0.75   $ 0.51  
 
 
 
Weighted average shares outstanding used in

computing basic net income per share
  41,050     40,116     40,981     39,904  
Weighted average shares outstanding used in

computing diluted net income per share
  42,724     41,245     42,657     41,112  
 

(1) In the six months ended June 30, 2012, an additional $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 six months ended June 30, 2013 and 2012 is allocated among the following captions (in thousands):
 
Three months ended Six months ended
June 30, June 30, June 30, June 30,
Stock-Based Compensation   2013     2012     2013     2012  
Cost of sales $ 228 $ 68 $ 447 $ 148
Engineering and technology 319 306 572 562
Sales and marketing 526 388 1,003 802
General and administrative   1,680     1,258     3,216     7,216  
Total stock-based compensation expense $ 2,753   $ 2,020   $ 5,238   $ 8,728  
 

(2) Other loss, net for the three and six months ended June 30, 2013 and 2012 is allocated among the following captions (in thousands):
 
Three months ended Six months ended
June 30, June 30, June 30, June 30,
  2013     2012     2013     2012  
Other Loss, Net
Interest income $ (109 ) $ (52 ) $ (164 ) $ (61 )
Interest expense 2,890 1,009 4,038 1,853
Amortization of debt issuance costs 476 332 583 663
Accretion of debt discount 949 124 1,110 259
Loss (gain) on derivative instrument 2,323 (333 ) 1,975 (61 )
Other   (225 )   (150 )   (233 )   (168 )

Total other loss, net
$ 6,304   $ 930   $ 7,309   $ 2,485  
 

(3) Calculation excludes the income effect of dilutive derivative instruments, net of tax effect, if applicable.
 
Blucora, Inc.
Preliminary Condensed Consolidated Balance Sheets
(Unaudited)
(Amounts in thousands)
   
June 30, December 31,
  2013     2012  
ASSETS
 
Current assets:
Cash and cash equivalents $ 217,434 $ 68,278
Short-term investments, available-for-sale 198,059 94,010
Accounts receivable, net of allowance of $10 and $10 35,524 34,932
Other receivables 4,123 3,942
Prepaid expenses and other current assets, net   7,185     10,911  
 
Total current assets 462,325 212,073
 
Property and equipment, net 8,565 7,533
Goodwill 230,290 230,290
Other intangible assets, net 122,611 132,815
Other long-term assets   10,589     2,582  
 
Total assets $ 834,380   $ 585,293  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
Current liabilities:
Accounts payable $ 35,048 $ 37,687
Accrued expenses and other current liabilities 17,802 13,280
Deferred revenue 2,938 3,157
Short-term portion of long-term debt, net of discount of $0 and $160 - 4,590
Derivative instruments   10,627     8,974  
 
Total current liabilities 66,415 67,688
 
Long-term liabilities:
Long-term debt, net of discount of $491 and $468 64,005 69,278
Convertible senior notes 179,882 -
Deferred tax liability 28,817 29,333
Deferred revenue 2,626 1,319
Other long-term liabilities   1,916     2,225  
 
Total long-term liabilities   277,246     102,155  
 
Total liabilities 343,661 169,843
 
Stockholders' equity:
Common stock 4 4
Additional paid-in capital 1,435,109 1,392,098
Accumulated deficit (944,362 ) (976,376 )
Accumulated other comprehensive loss   (32 )   (276 )
 
Total stockholders' equity   490,719     415,450  
 
Total liabilities and stockholders' equity $ 834,380   $ 585,293  
 
Blucora, Inc.
Preliminary Condensed Consolidated Statements of Cash Flows
(Unaudited)
(Amounts in thousands)
  Six months ended
June 30,   June 30,
  2013     2012  
Operating activities:
Net income $ 32,014 $ 21,104
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation 5,238 4,442
Warrant-related stock-based compensation - 4,286
Loss (gain) on derivative instrument 1,975 (61 )
Depreciation and amortization of intangible assets 12,197 10,779
Excess tax benefits from stock-based award activity (27,036 ) (19,051 )
Deferred income taxes (10,632 ) (7,273 )
Unrealized amortization of premium on investments, net 1,113 (412 )
Loss on equity investment in privately-held company 151 -
Amortization of debt issuance costs 583 628
Accretion of debt discount 1,110 260
Other 86 22
Cash provided (used) by changes in operating assets and liabilities:
Accounts receivable (591 ) 1,448
Other receivables (180 ) 1,053
Prepaid expenses and other current assets 4,383 149
Other long-term assets (94 ) 614
Accounts payable (2,641 ) (5,457 )
Deferred revenue 1,088 2,846
Accrued expenses and other current and long-term liabilities   30,214     15,982  
Net cash provided by operating activities 48,978 31,359
 
Investing activities:
Business acquisition, net of cash acquired - (279,386 )
Equity investment in privately-held company (4,000 ) -
Purchases of property and equipment (2,047 ) (494 )
Change in restricted cash 287 893
Proceeds from sales of investments 8,721 179,884
Proceeds from maturities of investments 53,585 32,125
Purchases of investments   (167,434 )   (6,031 )
Net cash used by investing activities (110,888 ) (73,009 )
 
Financing activities:
Proceeds from issuance of convertible debt, net of debt issuance costs of $6,432 194,818 -
Proceeds from loan, net of debt issuance costs of $2,343 and debt discount of $953 - 96,704
Repayment of debt (10,000 ) (25,000 )
Stock repurchases (1,051 ) -
Excess tax benefits from stock-based award activity 27,036 19,051
Proceeds from stock option exercises 1,244 5,496
Proceeds from issuance of stock through employee stock purchase plan 461 189
Tax payments from shares withheld upon vesting of restricted stock units   (1,442 )   (851 )
Net cash provided by financing activities 211,066 95,589
 
Net increase in cash and cash equivalents 149,156 53,939
 
Cash and cash equivalents:
Beginning of period   68,278     81,897  
End of period $ 217,434   $ 135,836  
 
Blucora, Inc.
Preliminary Segment Information
(Unaudited)
(Amounts in thousands)
       
 
Three months ended Six months ended
June 30, June 30, June 30, June 30,
2013 2012 2013 2012
Search:
Revenue $ 94,497 $ 81,808 $ 195,098 $ 157,103
Cost of revenue (1) 64,046 58,236 134,664 111,342
Operating expense 12,539 8,494 24,252 17,310
Search segment income 17,912 15,078 36,182 28,451
Search segment margin 19% 18% 19% 18%
 
Tax Preparation:
Revenue 22,684 19,075 87,421 59,476
Cost of revenue (1) 768 1,539 2,982 4,118
Operating expense 7,478 5,582 39,217 21,269
Tax Preparation segment income 14,438 11,954 45,222 34,089
Tax Preparation segment margin 64% 63% 52% 57%
 
Total segment:
Total revenue 117,181 100,883 282,519 216,579
Total cost of revenue 64,814 59,775 137,646 115,460
Total segment operating expenses 20,017 14,076 63,469 38,579
Total segment income 32,350 27,032 81,404 62,540
Total segment margin 28% 27% 29% 29%
 
Corporate:
Operating expense 3,135 2,525 6,333 6,331
Stock-based compensation 2,753 2,020 5,238 8,728
Depreciation 990 956 1,993 1,907
Amortization of intangible assets 5,095 5,248 10,204 8,872
Other loss, net 6,304 930 7,309 2,485
Income tax expense 5,667 5,655 18,313 13,113
Total corporate 23,944 17,334 49,390 41,436
       
Net income $ 8,406 $ 9,698 $ 32,014 $ 21,104
 

(1) Amounts do not include amortization of acquired intangible assets and certain costs associated with customer service and the operation of the data centers that serve our businesses, which include personnel expenses (which include salaries, benefits and other employee related costs, and stock-based compensation expense), the cost of temporary help and contractors to augment our staffing, bandwidth costs and depreciation.  Such amounts are reflected under the heading "Corporate".
 
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 Six months ended
June 30, June 30, June 30, June 30,
  2013     2012     2013     2012  
Net income (2) $ 8,406 $ 9,698 $ 32,014 $ 21,104
Depreciation and amortization of intangible assets 6,085 6,204 12,197 10,779
Stock-based compensation 2,753 2,020 5,238 8,728
Other loss, net (3) 6,304 930 7,309 2,485
Income tax expense   5,667     5,655     18,313     13,113  
Adjusted EBITDA $ 29,215   $ 24,507   $ 75,071   $ 56,209  
 
 
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 Six months ended
June 30, June 30, June 30, June 30,
  2013     2012     2013     2012  
Net income (2) $ 8,406 $ 9,698 $ 32,014 $ 21,104
Stock-based compensation 2,753 2,020 5,238 8,728
Amortization of acquired intangible assets 5,095 5,248 10,204 8,872
Accretion of debt discount on convertible notes 841 - 973 -
Loss (gain) on derivative instrument 2,323 (333 ) 1,975 (61 )
Cash tax impact of adjustments to GAAP net income (17 ) 3 (180 ) (87 )
Non-cash income tax expense (1)   5,231     5,181     16,405     11,778  
Non-GAAP net income $ 24,632   $ 21,817   $ 66,629   $ 50,334  
 
Per share amounts
Net income - diluted (4)

$
0.20

$
0.23

$
0.75

$
0.51
Stock-based compensation - diluted 0.07 0.05 0.12 0.21
Amortization of intangible assets - diluted 0.12 0.13 0.24 0.22
Accretion of debt discount on convertible notes - diluted 0.02 - 0.02 -
Loss (gain) on derivative instrument - diluted 0.05 0.00 0.05 0.00
Cash tax impact of adjustments to GAAP net income - diluted 0.00 0.00 0.00 0.00
Non-cash income tax expense per share - diluted   0.12     0.12     0.38     0.29  
Non-GAAP net income per share - diluted $ 0.58   $ 0.53   $ 1.56   $ 1.23  
 
 
Preliminary Adjusted EBITDA Reconciliation for Forward-Looking Guidance
(Amounts in thousands)
Ranges for the three months ending
September 30, 2013
Net loss $ (1,800 ) $ (800 )
Depreciation and amortization of acquired intangible assets 6,100 6,100
Stock-based compensation 2,700 2,700
Other loss, net (5) 4,000 4,000
Income tax benefit   (1,000 )   (500 )
Adjusted EBITDA $ 10,000   $ 11,500  
 
 
Preliminary Non-GAAP Net Income Reconciliation for Forward-Looking Guidance
(Amounts in thousands)
Ranges for the three months ending
September 30, 2013
Net loss $ (1,800 ) $ (800 )
Stock-based compensation 2,700 2,700
Amortization of intangible assets 5,100 5,100
Accretion of debt discount 800 800
Non-cash income tax benefit   (800 )   (400 )
Non-GAAP net income $ 6,000   $ 7,400  
 

(1) Blucora’s Adjusted EBITDA is calculated by adjusting net income determined in accordance with the accounting principles generally accepted in the United States of America ("GAAP"), excluding the effects of 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 intangible assets, stock-based compensation expense, and other loss  (income), net (which includes such items as interest expense, interest income, gains or losses on derivative instruments, 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, gains on resolution of contingencies, and litigation settlements), as detailed above.  Blucora’s management believes that Adjusted EBITDA provides meaningful supplemental information regarding the Company’s performance. Blucora uses 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.  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.  Items excluded from 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, Blucora's Adjusted EBITDA may not be comparable to similarly titled measures of other companies.
 

Blucora defines non-GAAP net income as net income, determined in accordance with GAAP, excluding the effects of loss from discontinued operations, net of taxes, stock-based compensation expense, amortization of acquired intangible assets, accretion of debt discount on convertible notes, gain or loss on derivative instruments, and the related cash tax impact of those adjustments, and non-cash income taxes 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 (which consist primarily of U.S. federal net operating losses).  The Company’s management believes that excluding the non-cash portion of income tax expense from its GAAP net income provides meaningful supplemental information to investors and analysts regarding the Company’s performance and the valuation of its business 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.  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 Blucora's 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 such items as interest expense, interest income, derivative instrument gains or losses, accretion of debt discount and amortization of debt issuance costs.
(4) Calculation excludes the income effect of dilutive derivative instruments, net of tax effect, if applicable.
(5) Other loss, net primarily includes such items as interest expense, interest income, derivative instrument gains or losses, accretion of debt discount and amortization of debt issuance costs. The Company's forward-looking guidance does not reflect potential gains or losses from derivative instruments.

Copyright Business Wire 2010

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