Blucora's (BCOR) CEO Bill Ruckelshaus on Q4 2015 Results - Earnings Call Transcript

| About: Blucora, Inc. (BCOR)

Blucora, Inc. (NASDAQ:BCOR)

Q4 2015 Earnings Conference Call

February 11, 2016 5:00 PM ET

Executives

Stacy Ybarra – Investor Relations

Bill Ruckelshaus – President and Chief Executive Officer

Eric Emans – Chief Financial Officer and Treasurer

Analysts

Dan Kurnos – The Benchmark

Michael Millman – Millman Research

Operator

Good day, ladies and gentlemen, and thank you for your patience. You’ve joined the Q4 2015 Blucora Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, this conference maybe recorded.

I would now like to turn the call over to your host, the VP of Investor Relations Ms. Stacy Ybarra. Ma’am you may begin.

Stacy Ybarra

Good afternoon, and welcome to Blucora’s investor conference call to discuss the fourth quarter and full year 2015 results. Before we begin, I’d like to remind you that during the course of this call, Blucora representatives will make forward-looking statements, including but not limited to statements regarding Blucora’s expectations about its products and services, outlook for the future of our business and growth initiatives, and anticipated financial performance for the first quarter and full year 2016.

Other statements that refer to our beliefs, plans, expectations or intentions, which may be made in response to questions, are also forward-looking statements for purposes of the Safe Harbor provided by the Private Securities Litigation Reform Act. Because these statements pertain to future events, they are subject to various risks and uncertainties, and actual results could differ materially from our current expectations and beliefs.

Factors that could cause or contribute to such differences include, but are not limited to, the risks and other factors discussed in Blucora’s most recent Quarterly Report on Form 10-Q on file with the Securities and Exchange Commission. Blucora assumes no obligation to update any forward-looking statement, which speak only as of the date the statement is made.

In addition, during this call, our management will discuss GAAP and non-GAAP financial measures. In the press release, which has been posted on our website and filed with the SEC on Form 8-K, we present GAAP and non-GAAP results along with reconciliation tables, and the reasons for our presentation of non-GAAP information. We have also provided supplemental financial information to our results in the Investor Relations section of our corporate website at www.blucora.com, and filed with the SEC on Form 8-K.

Now, I’ll turn the call over to Bill Ruckelshaus. Following his comments, Eric Emans will review fourth quarter and full year 2015 results and 2016 outlook. Then we’ll open up the call to your questions. Bill?

Bill Ruckelshaus

Thank you, Stacy. To those on the call, good afternoon and thank you for joining us. 2015 marked an important and transformational year for Blucora. In my opening remarks, I want to briefly recap our strategy, update on the execution steps remaining to complete the transactional phase of our transformation and provide further insights on the opportunities within and between HD Vest and TaxAct.

Let me start by providing some perspective on where we’ve been and how we have arrived at where we are now. Blucora’s multi-stage transformation began in 2010. In stage one, we pursued a deliberate strategy with a central objective, to allocate capital to acquisitions that bring needed diversity and improve the overall quality of our businesses and financial results.

In this effort, we brought to bear a large net operating loss that increases free cash flow conversion of businesses we own. The second stage, where we soon embark, involves organizing around our strongest assets and becoming more operationally focused. In executing stage one, our first step came in early 2012 with TaxAct, purchased for roughly $290 million.

TaxAct has performed well. Revenue, EBITDA and unlevered free cash flow have all grown at annual rates in excess of 10% since 2011, the year before our acquisition. TaxAct’s performance reflects the strengths of the team, balanced growth in consumer e-files and ARPU and expanding paid professional software and SMB business lines. Subsequent, smaller acquisitions of Monoprice in mid-2013 and HowStuffWorks in early 2014 contributed to the further diversification of Blucora, though in both cases returns on incremental capital versus TaxAct have proven less attractive.

Our acquisition late last year of HD Vest, and our decision to divest Infospace and Monoprice, now position Blucora to begin stage two of the Company’s transformation. HD Vest is the largest U.S. independent broker dealer focused on tax professionals. Pairing HD Vest with TaxAct creates a compelling new Blucora, industry leading franchises across financial advisory and tax preparation sectors, a strong financial profile through stable, predictable and recurring free cash flow and strategic opportunities to cross-sell solutions to common customers across both businesses.

Importantly, Blucora now anticipates full utilization of our tax advantages, generating approximately $160 million in future cash savings for shareholders. Our work isn’t done but the path is clear. In the coming months, our agenda is straight forward. Complete the divestitures of Infospace and Monoprice; Streamline corporate operating expenses; and introduce our new CEO to guide Blucora in the next phase of growth and development.

During this period, we will also execute our operational plans and integrate HD Vest. Upon completion of the divestitures, we will allocate at least 50% of sale proceeds to paying down debt. Beginning in 2017, we plan to begin returning capital to shareholders. Shortly I will turn the call over to Eric for more details on the financials, but first I’d like to provide an update on HD Vest and TaxAct, and touch briefly on the path forward.

Starting with Wealth Management. Despite a challenging market environment in the second half, HD Vest performed well in 2015. Highlights include revenue of $319.7 million, up 5% over 2014. Segment income of $43 million, up 7% year-over-year, segment margin of 13.4%, up 22 basis points versus 2014 and Ending total assets under administration of $36.6 billion, and advisory assets under management of $9.7 billion.

HD Vest operates in a large and growing segment of the financial advice industry supported by documented secular trends, including: a growing percentage of the U.S. population at or nearing retirement. Increasing adoption of financial advisors to plan for retirement and manage wealth. Gaining share of independent advisors not aligned with traditional wire house firms and a corresponding growth in asset flows to independents.

The HD Vest strategy is to be the premier provider of financial services to tax professionals, engaging ethical, trusted CPA’s as financial advisors delivering holistic advice to clients seeking financial security. Going forward, execution of this strategy is a function of three key initiatives. One, attract, grow and retain advisors through recruitment and training. Two, deliver technology solutions to drive advisor productivity and fee-based advisory solutions. And three, manage regulatory and compliance burdens cost-effectively.

In 2015, HD Vest added the greatest number of new advisors than at any point in the last eight years. Total advisors were up, marking the third consecutive year of positive advisor growth. Advisor recruitment was re-invented in 2014 with enhanced lead generation, simplified application and on-boarding and improved brand awareness. Extensive, formalized training and succession planning programs help retain new and long-tenured advisors and drive long-term value.

HD Vest is now partnering with TaxAct in ProAdvance, TaxAct’s paid professional marketplace. So far we’ve seen good leads from TaxAct to HD Vest with a nice conversion rate. Technology forms the cornerstone of HD Vest’s growth strategy. New advisory inflows in 2015 reached the second highest level in company history. The technology behind HD Vest’s V4 Client Experience is driving this momentum.

Let me provide two examples, 1040 Analyst provides automated analysis of Form 1040’s, creating highly effective advisor-client planning conversations about opportunities identified in tax returns. Since inception, advisors utilizing 1040 Analyst have acquired approximately 2,300 new clients with $200 million in new assets. Including assets captured from existing clients, 1040 Analyst is responsible for $440 million in new assets to the firm.

VestVision is an investment and retirement planning tool facilitating client-personalized plans that track to individual goals in all market conditions. Since launch in 2014, over 8,600 plans have been created with VestVision, representing 10% of all client assets now held at HD Vest. Some $3.5 billion in held away client assets are targeted for asset capture in the future.

These and other technology-enabled components of the V4 Client Experience provide robust client work flow tools enabling HD Vest advisors to grow their practices through individualized client insights and custom planning and investment solutions. HD Vest technology, delivered in training venues and supported by experienced home office team members, enhances advisor confidence and competence and drives advisor productivity.

Last, HD Vest operates in a dynamic regulatory environment. We plan expenses to fund current and future expected compliance, including the upcoming DOL rule. We expect a final DOL rule within next 60 days to 90 days, although the implementation deadlines are expected later in the year or beyond. If the rule is adopted as proposed, we see the most significant impact in disclosure requirements to clients with smaller IRA investments, resulting in additional annual costs estimated to be approximately $200,000.

From a materiality perspective, impacted smaller accounts represent approximately 2% of total assets under administration or $500,000 in equivalent of company gross profit. We can mitigate a portion of the rule’s impact by lowering account minimums and shifting balances to advisory accounts. Overall we do not expect the impact of the DOL rule, as proposed, to be material to our financial performance and we are working to best operationalize the new rule once finalized.

Now moving to Tax Preparation. The tax season is underway and thus far playing out as expected. This off-season TaxAct responded with new forms-based packages and refreshed branding, featuring a Free State/Free Federal offering for simple returns. Additional packages for more complicated returns are better tailored to the unique situations of our DIY filers. Priced at a fraction of the cost of similar online tax products, our offering is include mobile-responsive design, enhanced account management, refund snapshots, expanded security, identity recovery services and as always a price lock guarantee.

TaxAct also offers a preparers edition of its tax software to more than 19,500 tax professionals. This year improvements to product workflows allow completion of more client returns in less time with tools and enhancements including, dedicated customer support, enhanced reporting, secure document exchange through a new online portal, identity protection services and additional state editions.

TaxAct also launched ProAdvance, a new online resource designed to help tax professionals boost productivity and grow their businesses. These enhancements are being well received by our professionals and early trends in customers and revenue growth are positive.

The TaxAct value proposition, centered on fairness, simplicity, transparency and accuracy remains the strongest in the industry at all levels of complexity. Our enhancements this season will strengthen our ability to offer filers and paid professionals the best deal in tax. While it’s early in the season, we are pleased with the results thus far.

Let me touch briefly on shared opportunities between HD Vest and TaxAct. We continue to believe the combination of HD Vest and TaxAct brings opportunity to unlock synergy in two key areas. Bringing financial planning and wealth management solutions to TaxAct customers and introducing TaxAct professional customers to HD Vest. We are testing this season with TaxAct consumers to help inform our implementation next year. Early receptivity tests are encouraging and confirming of ingoing assumptions.

On the paid professional side, as mentioned, HD Vest is now partnering with TaxAct in their CPA marketplace. We are seeing strong interest from TaxAct professionals in learning more about HD Vest, aided by a hosted webinar introducing HD Vest and featuring a cobranded free trial of the 1040 Analyst solution. TaxAct professionals are proving engaged and open to new solutions to grow their practices.

I will wrap up with some comments on the remaining executions steps in our transformation. The divestiture processes for Infospace and Monoprice are moving according to schedule. We hope to conclude both processes sometime in the middle of the year. We are seeing strong interest from both strategic and financial buyers and are optimistic in each case that we will identify new owners in transactions that both maximize our cash flow and provide new opportunities for our teams.

Both businesses performed well in the fourth quarter. I’ll share a few brief highlights. Search and Content revenue and segment income grew versus the third quarter, representing the first sequential increase in 2 years. Bing is now fully implemented across the search network, bringing added monetization and substantially reducing reliance on Google and Yahoo.

At How Stuff Works, we continue to make progress with the publishing and revenue optimization platform launched in October. The new platform is driving ROI positive traffic from non-search channels, doubling our rate of revenue and growing page views 4x. The HowStuffWorks podcasts continue to shine and experienced record downloads in Q4.

Monoprice revenue grew 7% year-over-year in the fourth quarter and generated double-digit revenue growth during the holiday season, well outpacing the overall consumer electronics market. Cyber Monday revenue was up 17% over 2014. KPI’s are trending up in key categories. Site optimization initiatives are proving out. Visits converted a higher rate with a 12% decrease in bounce rate and – up 15% increase in average order value.

Our new Kentucky warehouse was running this holiday season allowing for more competitive shipping and a driving a 5% lift in east coast sales. Product innovation, a key focus of the team, resulted in the highest quarterly revenue from new products in the Company’s 13 year history.

To sum up our progress, our transition to a technology-enabled financial solutions company is underway and the remaining execution steps are on track. The new CEO search is progressing well and a short list of qualified candidates is undergoing Board evaluation. I am particularly pleased at the quality of candidates we are seeing. HD Vest and TaxAct are high quality businesses with significant shared opportunities. Together they represent important characteristics and combined potential for the new Blucora.

Strong secular trends driving large market opportunities; established leaders with defensible market positions; sustained growth profiles; sticky, recurring and predictable revenue models; complementary and diversified sources of revenue; experienced and tenured senior leadership teams.

With that, I’ll turn the call over to Eric for more details on the financials.

Eric Emans

Thanks Bill. It was a busy fourth quarter. We closed the acquisition of HD Vest on December 31, 2015 and announced our plans to divest our Infospace and Monoprice businesses. These events have triggered significant changes in the way we report financial results from our last call. Most notably, our Search & Content and Ecommerce segments are now reported as discontinued operations leaving Tax Prep as the lone business segment in continuing operations.

I will touch quickly on the reported results but I will spend the majority of my prepared remarks focused on pro forma results that include HD Vest as we believe this presentation most accurately reflects the financial performance of the Company on a go-forward basis. Please note that the results of HD Vest will be reported as our Wealth Management segment.

Before we begin, I want to again call your attention to the supplemental financial information we have posted to the Blucora IR site. We believe this information, which includes several schedules that recast historical reported and pro forma results will be helpful to investors.

Beginning with our reported results for 2015, revenue was $117.7 million and adjusted EBITDA was $39.2 million, up 13% and 11% respectively, versus prior year. Non-GAAP net income from continuing operations was $28.2 million, up 21% year-on-year, and $0.67 per diluted share. Adjusted EBITDA and non-GAAP income from continuing operations include add backs for HD Vest related transaction expenses and expenses associated with our previously announced CEO transition.

GAAP loss from continuing operations was $12.7 million or $0.31 per share. GAAP net loss for the year was $40.1 million or $0.98 per share and includes a loss from discontinued operations of $27.3 million or $0.67 per share.

As of December 31, 2015, our balance sheet reflects the HD Vest acquisition including net debt of $540.9 million. As of year-end, our net leverage ratio was 4.6 times when giving credit for the segment income of our discontinued operations, as well as taking into account cash and debt associated with discontinued operations. As Bill mentioned, we are committed to paying debt down in 2016 and achieve net leverage of 3-times in early 2017. To this end, in the first quarter 2016 we expect to pay down $30 million of our term B credit facility utilizing cash from operations.

Let’s move onto a discussion of pro forma results for full year and fourth quarter 2015. On a consolidated basis, pro forma revenue for 2015 was $437.4 million and adjusted EBITDA was $82.2 million. Non-GAAP income from continuing operations was $37.0 million or $0.88 per diluted share. Pro forma GAAP loss from continuing operations for the year was $11.5 million or $0.28 per share, driven by acquired intangibles amortization associated with the HD Vest acquisition.

Consolidated pro forma revenue for the fourth quarter was $85 million and adjusted EBITDA was $3.5 million. Non-GAAP loss from continuing operations was $8.0 million or $0.19 per share. The loss reflects increased interest expenses associated with the Term B credit facility. Pro forma GAAP loss from continuing operations for the quarter was $13.9 million or $0.34 per share and includes acquired intangibles amortization associated with the HD Vest acquisition.

Turning to the pro forma segment performance and expectations for first quarter 2016, starting with Tax Prep. Full year Tax Prep revenue was $117.7 million and segment income was $57.0 million. Revenue was up 13% and segment income was up 15% versus prior year and segment margin was 48% a great year. Fourth quarter 2015 Tax Prep revenue was $2.9 million and segment loss was $4.5 million, both better than expectations.

Looking ahead for Tax Prep, we are confirming our first half 2016 revenue and margin guidance. We expect revenue of $122 million to $125 million at a margin of 55% to 56%. We expect approximately 70% of the first half revenue will come in during the first quarter at a margin of approximately 52%. This represents a shift in revenue and profitability to the second quarter when compared to last year driven in large part by our pricing and packaging changes, which we expect to drive higher ARPU in the second peak.

Moving on to Wealth Management, full year 2015 pro forma revenue was $319.7 million and segment income was $43 million, up 5% and 7%, respectively, versus 2014. Revenue growth was driven primarily by an 8% increase in advisory revenue, which benefited from strong net flows for the third quarter 2014 through first quarter 2015, as well as a favorable S&P bump entering the year. Overall advisory AUM was up 1% for 2015 as approximately 45% of net flows were offset by market declines.

Commission revenue was up 3% driven by a 4% increase in transactional revenue, which exited the year strong and trailers were up 2%. Total recurring revenue for the year was approximately 78%. Net revenue was up 3% as adviser payout increased 45 basis points. Segment income growth and margin expansion were driven by net revenue growth and increased operating leverage through expense management. Operating expenses were up less than 1% year-on-year.

For the fourth quarter pro forma Wealth Management revenue was $82.1 million and segment income was $12.2 million, up 4% and 18% respectively, year-on-year. Revenue growth was driven by a 6% increase in commission revenue as transactional revenue was up 14%, while trailers were flat year-on-year. Advisory revenue was also flat year-on-year attributable to the S&P being down 7% sequentially exiting the third quarter.

Net revenue was up 3% as adviser payout increased 75 basis points versus the fourth quarter 2014 attributable to revenue and adviser mix, which was partially offset by growth in attachment revenue. It is worth noting that exiting 2015 we saw an increase in sweep revenue attributable to fed interest rate action and an increase in our cash sweep balance related to market volatility.

Segment margin expanded to 15% primarily driven by operating leverage in the business, as operating costs were down 8% year-on-year as the team focused on profitability in the back half of 2015. Looking ahead to first quarter 2016, we expect revenue of $77 million to $79 million at a segment margin of 13% to 14%.

Switching gears to pro forma unallocated corporate operating expense, full year 2015 was $17.8 million and fourth quarter was $4.3 million. These pro forma numbers exclude transaction expenses and CEO transition costs, as well as any costs specifically identifiable to discontinued operations. Consistent with our comments in October, we expect our strategic transformation will allow us to reduce unallocated corporate operating expenses, with an anticipated achievement of a $12 million run rate in early 2017.

With that being said, 2016 will be a year of transition as we divest the Infospace and Monoprice businesses and integrate HD Vest. As a result, we will incur costs to support this transition throughout 2016. In general, transition costs fall in two categories. First are one-time costs incremental to our 2015 cost base like HD Vest integration cost. The second category are cost needed to support us through this transition and for the most part are expected to decline throughout the year. To this end, we are expecting unallocated operating expenses will be just north of $5 million in first quarter 2016. For the full year, we expect unallocated cost to be approximately $18.5 million.

With that let’s summarize our first quarter 2016 outlook for continuing operations. For the first quarter, we expect consolidated revenue between $162.5 million and $167 million, adjusted EBITDA between $49 million and $52 million. Non-GAAP income from continuing operations of $36.7 million to $39.9 million or $0.88 to $0.96 per diluted share; and GAAP income from continuing operations of $14.4 to $16.6 million, or $0.35 to $0.40 per diluted share.

In addition to first quarter outlook, we are providing full-year outlook for continuing operations on a consolidated basis. This is at a partial from our past practice, but appropriate in light of our strategic transformation and the stability of our continuing operations. For the full year, we expect consolidated revenue between $444 million and $462.5 million. Adjusted EBITDA between $86 million and $91.5 million, non-GAAP income from continuing operations of $40.6 million to $47.5 million or $0.96 to $1.12 per diluted share and GAAP loss from continuing operations of $7.5 million to $2.2 million or $0.18 to $0.05 per share.

With that, let's turn the call over to the operator and we will take your questions.

Question-and-Answer Session

Operator

Thank you, sir. [Operator Instructions] Thank you. Our first question comes from the line of Dan Kurnos of The Benchmark. Your line is open.

Dan Kurnos

Great, thanks. Good afternoon guys. Three questions from me. First, just on the divestitures, I guess, we’ll start with that. Obviously, the market has not been very favorable to say the least to anybody in the front half or front quarter of this year. We’ve seen a lot of players in the search space continue to struggle; obviously, [indiscernible] Perion bought Undertone and they’re persisting – they’re not – they don’t have any cash really anymore. So I’m just curious, how you’re thinking about? I know you said sales are still on plan to be accomplished by the first half of this year and be a little bit longer than we all expected, but just in this market place, you still think you can recognize a fair value for the assets you’re trying to divest?

Bill Ruckelshaus

Hi, Dan, it’s Bill. I think the – consistent with our update in the upfront remarks, the divestiture processes both with Infospace and Monoprice are going as we had expected. We’re still planning on completing both processes in the middle of the year as to the impact on either process of the market and the choppiness, we’re not seeing it. These are assets that are pretty well-known to the group of buyers that were approaching and that include both financial buyers as well as strategic. In each case you’re going to have peculiarities around a business model or a particular industry as you pointed out some of those as it relates to search, but the good news is the buyers that we’re approaching are pretty well educated.

Dan Kurnos

Okay. And then just Bill maybe, I know you talked in your prepared remarks about how you see kind of the integration in energy process occurring over the balance of the year, you’ve had HD Vest for whole loping months now. Just curious and now that you’ve gotten your hands dirty, if you can give us anymore granularity on either crosspollination, obviously you’ve talked about the record levels advisor ads. But just any further thoughts you can give us additional color just as you have now – now that you have the asset in your possession as it relates to synergies and opportunity there.

Bill Ruckelshaus

Yes. So, I think that as we had stated when we made our announcements last year, we do feel like there are fantastic opportunities to promote advisory solutions to TaxAct customers both DIY consumers as well as pay professionals. Not all of the TaxAct customers, consumers or professionals will be a good fit, maybe not even a majority, but we do know from the name files on both sides of business that there are segments of TaxAct customers, where the fit is really strong.

Consumers for whom an introduction to an HD Vest advisor to help them plan, save, and invest would be very well received. And likewise, tax professionals looking to augment their practices with financial advisory solutions for clients. One thing to point out on the – and why we find this model in the combination potential, so interesting is really two things. One is that the added monetization potential with TaxAct customer. So, the HD Vest model is extremely profitable on a per client basis, consumer basis. Revenue was approaching about $900 and net revenue is roughly $280. At these levels, you don’t have to make [indiscernible] adoption assumption to see your way to or beyond the synergy number we provided last year.

And on this pay professional side, you can do the same math and arrive at the same conclusion. So, this season – in the tax season, we’re testing two things. One is the trying to get a better handle through in applications, questionnaires and surveys and interaction with clients. The solution requirements, which is what are their pain points and what wealth management products might have the greatest resonance to them in the future, and also receptivity, which is how would our filers react to the prospects that speaking on the phone or receiving e-mailed information about wealth management options through HD Vest. So we’re going to come away from this season with a lot more information and I think be able to hit the ground, running next season.

Dan Kurnos

Great. And then just last one for me Eric, just I am trying to reconcile the pro forma 2016 guidance with what you gave back in after the HD Vest acquisition here. And one or two things unless I’m making a mistake, which is entirely possible, it’s been a long earning season, but one or two things just doesn’t seem to fit here. Either TaxAct is going to grow 10% and at the low-end that means HD Vest revenue would be down 1.5% year-over-year in 2016 or TaxAct is not embedded in your guidance, embedded to grow at that sort of 10% rate, which you think has been a pretty consistent target and HD Vest is still going to achieve its 334 to 344 number. So just can you help me sort of reconcile that, is it market issues with HD Vest the fact that the stock markets come down or just what are the puts and takes there that gets you to the guidance range for 2016? Thanks.

Eric Emans

Yes, Dan, this is Eric. So looking specifically at revenue, there is some softness versus than what we communicated and that is market driven, but – and that we’re not going to get into specifically breaking those out, but the tax businesses is expected to perform to plan and in a large part – that could be seen by us reaffirming our first half guidance there where the majority of revenues comes through. I think that the thing to point out and why – again why we really like the combination of these two businesses and quite frankly why we have the confidence to put forth the full-year guidance, which is something that we have not done before is because and really around the profitability and the adjusted EBITDA that these businesses can drive.

And that’s what we – that’s what we like about both these businesses. And even though we are seeing some softness on the top-line, we are still able to come in where we want to on the bottom line. So, yes, the market is playing a little bit with the top-line, but I think we’ve got a very experienced team that understands the operating leverage in your business, both teams do, but one of the things we like specifically about HD Vest was is yes it is market is a factor. It isn’t the only thing that drives that business. And there are a lot of things that are within their control.

And as – as I talk to Roger a lot, we focus on is the number of advisors, what times the assets equals the revenue and they’re very good at driving advisors. They’re very good at helping those advisors to retain and acquire. And those advisors are very good at having those guys grow their assets, which drives production in those. Certainly market can’t play a factor into that, but that is not the primary driver in this business. So very pleased with where we are on the bottom line and we’re certainly putting some of that sensitivity to test right out the gate here, but at this point we’re confident in the assets ability to perform in the markets and that’s what we liked about it when we bought it.

Dan Kurnos

Got it. Great, thanks guys. Appreciate it.

Operator

Thank you [Operator Instructions] Our next question comes from Michael Millman of Millman Research. Your question please.

Michael Millman

Think you. Could you talk about the impact of reduced tax refunds we’re seeing this year on returns? And also give a little more color to your comment that the tax season is playing out as expected?

Bill Ruckelshaus

Yes, Michael, I’ll start off with the second part of your question. Look, the bottom line with TaxAct is the changes we’ve made in the off-season; position TaxAct to be more competitive in the marketplace and we’re finding that to be the case. And I think we’re benefiting from those changes, allowing us to sort of recapture at all filers segments, the best deal in tax. And certainly, our comfort level in terms of reaffirming full season guidance should give you some indication as to why we think that is playing out the way it is. Share impacts from our changes I think are going to occur along two dimensions.

The first season I think and what we know is that we’re going to be able to better retain existing TaxAct filers in 1040A and 1040EZ. We have obviously placed a big priority on retention and know that this is going to improve our stickiness with customers. And then over a multi-year basis, our packaging changes will result in higher aggregate ARPU, which will put us in a position to be able to reinvest those economic back into customer acquisitions brand building, which I think is really going to be where the battle is waged and ultimately won from a share perspective.

Eric Emans

Yes – and as it relates to your first question – rather than speak specifically to any particular trend, I guess what I would say is, as we think about where we sit in the tax season in our plan and where we are with the price and packaging that Bill mentioned is, we’re very confident in the financial performance that this business can put forth and in the face of that change and things are going actually, I would say at this point even a little better than what we’d expected.

As it relates to units and all the various market factors that can go into that I think quite frankly that that market story is a little opaque to us right. There is not a ton of information available. And we do assume that the mark was going to grow 2% to 4%. And so, our plan has that assumption in it. And I would say we’re trailing a little bit behind our plan right. But as respect to any specific trend, I think I would just leave my comments at that high level.

Michael Millman

So do you have any ideas to why refunds are down so much?

Eric Emans

Not at this time.

Michael Millman

Okay, thank you.

Operator

Thank you. And that does conclude our call for this afternoon. Thank you for your participation and have a wonderful day. You may disconnect your lines at this time.

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