BCOR
#Hey, <UNK>, it's <UNK>.
I think this is a highly regulated industry and constantly changing, and so it's something we're going to have to stay in front of.
We have a very experienced team at HD Vest that has been doing this for years, and so we take great comfort in that.
I think as we think about regulatory exposure and the questions that people have been focused on, it's really related to the prospective DoL changes which would impact primarily retirement-based accounts or retirement assets that are either illiquid or alternative, or variable annuities which are already tax-advantaged savings vehicles for retirement.
We've talked a little bit about that in our previous call.
Basically the way to think about that in our business is about 20% of our revenue is driven by transactional ---+ transaction or commission-based revenue, and only less than 50% of that total is driven by variable annuities and alternative products.
The other thing I would say is this is a top 10 independent broker-dealer.
It's got the size and scale to deal with these types of changes and a very experienced group to do that.
Part of the DoL change is going to require fiduciary responsibility from the advisor to its clients.
If you think about our clients, they already have a fiduciary responsibility.
They are enrolled agents and CPAs, so I think it's nothing that's going to be new for them.
Then as we've also talked about, the trend in our assets under management, over time it's moving more and more towards fee-based, which will not be impacted by the DoL regulation.
So I think, look, it's a macro risk to the industry and something that we spend some time on and management at HD Vest is very familiar with.
And we think we are well positioned to deal with the changes.
But certainly it can impact players in this space, and we'll work hard to make sure it minimizes the impact on us.
Yes, <UNK>, it's <UNK>.
Look, I think this is consistent with what we've been citing as the strategic objectives over the last several years, which is to position Blucora with quality businesses that had strong growth prospects, and ideally where there was a tying together of those businesses we owned, where we could focus.
The attributes we would look for would be attributes we would all recognize as contributing to the definition of a good business, including growth and predictability, visibility.
And certainly we see those attributes in TaxACT and the opportunities to pair TaxACT with HD Vest and, in connection with that, very logically, look for new owners for InfoSpace and Monoprice, strikes us as precisely the right direction to go to as it relates to fulfillment of the strategy.
So what does that then enable.
Well, I referenced in my opening remarks the idea of unlocking value in Monoprice and InfoSpace.
I truly believe that these businesses will be more valuable in the hands of a different owner than they are right now in the hands of Blucora.
That's one of the reasons why I believe unlocking value is likely to happen in these forthcoming divestiture discussions.
And upon our executing those divestitures then bringing together TaxACT and HD Vest inside of a more lean corporate parent, we are well on the way toward a repositioning of the Company around something that I think actually has probably more recognizability and coherence inside a particular space, and where their synergy opportunity gives us an opportunity to think about reinvesting in strategic ways, as well as shifting our capital allocation view when it comes to M&A toward being much more through a strategic lens, which is always advantageous.
Also, I think importantly it puts us on a path of utilizing the NOL, which has been a significant asset and a potential significant source of value for shareholders.
This transaction definitely checks the box on that and positions us, as we discussed on our last call, in 2017 to start returning capital to shareholders so that they can start to benefit directly in the value creation that we're seeing from this.
So I think all in all, it is a very complicated set of messages that we announced a couple weeks ago, but when we get through some of these intermediate execution steps I think we'll be very well positioned and our shareholders will start to benefit.
Yes.
In the presentation that we provided a couple weeks ago in connection with our announcement, there was a particular schedule where we pointed to 2015 and 2016 results for HD Vest and also referenced a long-term model.
That's probably a good schedule to point you to in terms of guidance ---+ at least guidance that we're prepared to provide at this point, whether it is financial based or metrics based.
But I would point you back to that, <UNK>.
Then the synergy capture is ---+ frankly, just one of the sources of synergy that we actually see occurring in this transaction specifically relates to bringing some of the HD Vest investment advisory solutions as well as investment choices to TaxACT customers, either in connection with their tax planning and filing or outside of it.
We specifically modeled 2017, which is when we think we're going to be best prepared to do that in as seamless and automated a fashion as possible.
you might imagine that as we approach the end of the year and have not yet even closed the transaction, it's going to be difficult to pull that off in the coming tax season.
But that's really the source of synergy that was modeled.
I think the synergies that we think actually exist in total are coming from a variety of sources.
So in our minds, that's just scratching the surface.
Hey, <UNK>, it's <UNK>.
A couple things that I would add to that is, if you just take the guidance that we provided for the first half of tax season for next year, and do it on an LTM basis just as a proxy for 2016 for the TaxACT business, let's call that $61 million of segment income.
And if you assume we get to our corporate OpEx number of $12 million in early 2017 on a run rate basis and just pro forma that back to 2016, you're looking at adjusted EBITDA of close to $100 million, call it $96 million, and unlevered free cash flow about $86 billion, and a non-GAAP EPS of $1.29, which is really in our calculation a proxy for cash per share for shareholders.
And that is going to be up, call it, 16% to 18% versus what a pro forma basis would be on 2015.
So I think you really start to see the benefit of this asset being in our ownership structure.
And then compounding on top of that is the synergies which are not ---+ are even outside of that, that we hope to unlock in 2017.
So I think there's a really compelling case if you focus on getting through, as <UNK> said, these transitional steps and putting us on a path to provide some pretty healthy financial results and metrics into the future.
Yes.
A couple things I would say to that, and <UNK> touched on it in his prepared remarks.
I mean, we are changing some pricing and packaging this year; and I think the way to read that is we are prioritizing share growth.
We've always sought out profitable share and we'll continue to seek out profitable share.
But a lot of the pricing and packaging changes that we're going to make this year is to make us more competitive, which will introduce a little more uncertainty into our forward expectations, just when you introduce change.
We're going to make sure that we're conservative.
But I would also call your attention to a couple other things.
We're continuing to invest in tools and technology, which will ---+ or one-time investments that we believe are going to come through next year.
So I think assuming that we're going to give up a point or so in margin next year for future growth is the right way to think about it.
Then in addition to that, we're bringing Simple Tax on.
That's something we're excited about up in Canada, and we're looking to invest in that as well.
So I think that 2016 is a year of where we're changing our pricing and packaging, looking to be a little more aggressive on share, and then as well make some investments in the core as well as up in Simple Tax up in Canada.
Yes, hey, this is <UNK>.
I think the near-term focus is going to be on integrating HD Vest, making sure that the conversations and tie-ins between HD Vest and TaxACT are happening at the right levels and at the right pace, and deleveraging.
We're taking on a fair amount of debt to finance this transaction and that's certainly going to be the priority.
As we move down to a more reasonable level of net leverage, I think we'll have the option to think about acquisitions.
But certainly in the next year or so we're going to be laser focused on deleveraging.
Certainly that can be an option for us.
I think the 5.5 million filers in the US is probably the bigger target to focus on; but as Simple Tax continues to ramp up in Canada we're going to look for opportunities to connect HD Vest with Simple Tax as well.
So, probably the simple way, it's the first category you mentioned, which is just as ---+ the interesting observation that the founders of HD Vest started with was that, as it relates to financial advisory and wealth management, is the unique position that is occupied by the tax preparer, the tax professional, and that comes from two perspectives.
One is that the relationship is among the more trusted relationships of any professional services relationship that most of us have in the United States.
There are surveys they've done year in and year out that continually rank your tax preparer right up there maybe alongside your doctor as the most trusted relationship that you have.
So that's one.
The second observation was that it is precisely in the process of preparing your tax return and coming out of that filing that ideas are ---+ and opportunities come forward as it relates to how it is someone can optimize either their tax preparation or their investment objectives.
So it's really with those two observations that HD Vest was ultimately founded and has grown to be what it is today.
Well, I would say that precisely that set of dynamics when taken to the TaxACT relationship with its 5.5 million filers I think applies and gives you a sense as to why we think there's an opportunity to bring some of the HD Vest products to those filers, in the sense that there is a trusted relationship between TaxACT and its filers.
And it is also true that there is signal coming off of those filings as to what might represent suitable investment opportunities for those particular filers, based on information gleaned from their tax filing.
So that's really the extension of the ---+ why we think it can fit.
I think what we have to do to best execute against these opportunities is build the technology that will allow for, as best as possible, an automated presentation of the investment options as well as an automated fulfillment should a filer want to pursue one of them.
And also, as you might imagine, it's important to be very transparent with our filers in terms of getting their consent along the way, which we think is something that we intend to do.
And those will be forthcoming when the filers see the value in the alternatives that they can be presented with.
So hopefully that helps explain it.
It is in many respects what the advisers inside of the HD Vest network are doing on behalf of their clients.
It's taking those sets of solutions and products and bringing them in a technology-enabled way to the 5.5 million filers inside of TaxACT.
Well, HD Vest itself is a fully registered investment advisor, so they have an ability to offer that.
So it would be an HD Vest provided solution.
Yes.
They have a home office, and because they are registered, they are a corporate RIA, they can offer those services.
Yes.
No, I think that ---+ not to dismiss inorganic growth as an option for the Company going forward, it's just in this intermediate period of the need to delever.
But yes, certainly I think whether it's products or accelerating the rate of advisor acquisition through strategic acquisition, or technology-related pieces that can facilitate the HD Vest model or the HD Vest intersection with TaxACT, yes, all of those things are going to be interesting to evaluate.
We're already ---+ been in discussions with both the TaxACT and HD Vest teams around how to start thinking about segmenting the landscape of opportunities.
