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.

Contact Information:

Blucora Contact:
Stacy Ybarra
425-709-8127
stacy.ybarra@blucora.com

Blucora Reports Third Quarter Results

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