Blucora, Inc. (BCOR) CEO John Clendening on Q3 2018 Results - Earnings Call Transcript

About: Blucora, Inc. (BCOR)
by: SA Transcripts

Blucora, Inc. (NASDAQ:BCOR) Q3 2018 Results Conference Call October 31, 2018 8:30 AM ET


Bill Michalek - Investor Relations

John Clendening - Chief Executive Officer

Davinder Athwal - Chief Financial Officer


Chris Shutler - William Blair

Brad Berning - Craig Hallum

Dan Kurnos - Benchmark

Alex Paris - Barrington Research


Good day, ladies and gentlemen, and welcome to Blucora's Third Quarter 2018 Earnings Conference Call [Operator Instructions]. And as a reminder today's conference is being recorded.

I'd now like to turn the conference over to Bill Michalek, Vice President of Investor Relations. Please go ahead.

Bill Michalek

Thank you, and welcome everyone to Blucora's third quarter 2018 earnings conference call. By now you should have had opportunity to review a copy of our earnings release and supplemental information. If you've not reviewed these documents, they are available on the Investor Relations section of our website at In addition, this quarter, we'll be referencing a set of slides that are also available on the website and will be on displayed in the webcast viewer.

I'm joined today by John Clendening, Chief Executive Officer; and Davinder Athwal, our Chief Financial Officer.

Before we begin, let me remind everyone that today's discussion contains forward-looking statements based on the environment as we currently see it and speak only as of the current date. As such, they include risks and uncertainties, and actual results and events could differ materially from our current expectations. Please refer to our press release and other SEC filings, including our Forms 10-K, 10-Q and other reports for more information on the specific risk factors. We assume no obligation to update our forward-looking statements.

We will discuss both GAAP and non-GAAP financial measures today and the earnings release available on includes the full GAAP and non-GAAP reconciliations. With that, let me hand it over to John.

John Clendening

Thanks, Bill, and good morning, everyone. I'm pleased to report that our third quarter results came in at or above the high end of our target ranges on all metrics. Third quarter revenue improved by 6% year-over-year to $95.4 million. Adjusted EBITDA was $1.4 million, which was down slightly year-over-year as expected due to timing, as we reinvested some of that stronger than expected first half profits in the third quarter.

Non-GAAP net loss of $4.4 million or $0.09 loss per share, represented 25% improvement on a per share basis, year-over-year, and GAAP net loss was $14 million, a 17% improvement year-over-year or $0.37 per diluted share.

Moving to the business unit level, starting first with wealth management. The big story in this segment for Q3 was clearly the critical clearing conversion project. As you'll recall we announced last year that we'd be transitioning to Fidelity Clearing & Custody Solutions as a new clearing platform, and with it, we received a number of significant benefits, including better capture of interest income on client cash or cash sweep in a rising rate cycle, increased revenue share economics including an opportunity to bring back on platform assets currently held direct-to-fund or DTF, and technology savings along with superior capabilities such as eMoney and operational improvements.

The magnitude of the benefits is significant, and rightly dominated the team's focus in the past several months, with work accelerating in the third quarter focused on ensuring readiness, the right change management, training internal teams, training advisors and so much more. It was our primary focus and we had to get it right. I'm delighted to share that the conversion of assets occurred successfully on September 23. That's great news. And I commend the strong leaders at HD Vest and their teams that drove this outcome, along with our terrific advisor community and our partners at Fidelity. We are now focused on helping employees, advisors and end clients get accustomed to the new technologies, policies and processes, and are seeing rapid progress.

We now look forward to fully capitalizing on the many added benefits that the new platform provides, including new technology and resources that are now available to our advisor base, such as eMoney and investment. As a reminder, eMoney is cutting edge planning and collaboration technology. This platform will make it easier for advisors to create and update holistic financial plans. It aggregates household information in real time and enables advisors to visually demonstrate projected benefits and potential impact under multiple scenarios to their clients through interactive portal. Improving ability for advisors to provide a clear vision of the client's financial picture, helps to strengthen relationships and retention, and often drives additional client asset consolidation, along with interest in for-fee advisory services, potentially increasing total advisory assets.

Envestnet is a market leading wealth management platform that simplifies the process for advisors to create, maintain and report on current portfolios, including key technology for unified managed accounts or UMA. Our UMA solution vests strategists, provides high net worth investors with an investment solution that offers low fee, direct ownership of underlying security, and tax loss harvesting while leveraging premier third party investment managers such as Putnum and Legg Mason.

At the other end of the spectrum, we have rolled out VestAccess, a low fee, low account minimum introductory solution that leverages automated investing and robo technology. VestAccess is also a strategic tool as it gives advisors a compelling investment solution for small clients with significant future promise, as well as the children of larger clients. We've opened accounts in each of these solutions and over time, they may serve to accelerate the shift of funds from brokerage into advisory.

As we told you in previous quarters, we expect the new clearing arrangement will generate more than $120 million in incremental segment income over the 10 year contract duration. And this will allow us to provide end customers higher interest income over time, while putting the bulk of the benefit between growth initiatives and enhancing bottom line earnings.

Our targets for the net benefit from the current conversion over the next few years remain unchanged. For 2018, we expect a small net benefit of $1 million. For 2019, assuming one additional rate increase in the target range by mid-year to 2.25% to 2.5%, we expect a benefit of between $10 million to $12 million. And for 2020 assuming no additional rate changes, we expect an incremental $2 million, or $12 million to $14 million total versus our pre-conversion run rate. As we've shared in the past, you should think of these numbers on a gross basis. In other words before modest increase in client yield and potential investments for growth.

Despite the distraction of this project, HD Vest grew revenue for the quarter by 6% year-over-year to $92 million. With the continued investment in current project, segment income also grew 4% to $13 million. As we discussed on our last call, we deliberately metered advisor transfers from other firms ahead of the conversion to avoid a dual migration. Despite this, net flows in to advisory were quite strong at $200 million.

In total, we're pleased advisory's assets were up 13% year-over-year to $13.5 billion and now represent 29.1% of total client assets, an increase of 100 basis points year-over-year. Total client assets increased 9% year-over-year to $46.4 billion. The levels for both advisory assets and total client assets represent new records for the company. Given the metering of advisor transfers ahead of the conversion, we had previously indicated that we might see strong inflows in Q4 and possibly overflow into Q1 of 2019. We still believe that to be the case and expect that 2018 will be a record year for advisory net flows, possibly approaching or even exceeding the $1 billion mark for the first time.

Lastly on HD Vest, we have mentioned on recent calls that we have expanded our available market to now serve larger accounting firms with multiple partners and multiple offices. To provide an example of success story, one of the new firms on our platform that we mentioned in our February call is now in the process of adding their first five accounts with an average account size of $1.6 million, which is more than 10 times our average account size. While, we don't expect average account of that size across all of the firms added, it's a nice example that supports our strategy and its organic growth opportunity.

Moving now to tax preparation, as we look forward to the start of another tax season, we continue to execute our plans and ensure that we are best positioned to build on our success from earlier this year. We continue to invest in technology, infrastructure, partnerships and people to provide the upgrades, improvements in value that we provide our customers this season as well as the technology improvements that will benefit us and our customers for years to come.

With regard to technology improvements, we embarked last year on a multi-year process to modernize and upgrade our capabilities, initially focused on moving to the cloud via AWS, an enhancement that we've completed as well as introducing machine learning and augmented intelligence at key parts of tax filing experience. We are now turning to additional technology upgrades which we are carefully pacing. These investments when completed, in addition to making us more modern and efficient will enable increasingly rapid product development and roll out in future years. On the front end, customers will have an enhanced experience for tax year 2018 season, finding our products easier, more intuitive and faster to use, from starting to file completion.

We'll also see the evolution of our strategic partnerships, and as we've said in the past these partnerships enable us to diversify our revenue in two ways. One, by creating new sources of customer acquisition and two, extending customer relationships to new products and offers while we serve them more holistically as we try to help them improve their financial lives. We expect our offerings for next season will include deeper and broader relationships with select key partners from this year, will include an expanded partnership platform with new partners and more ways for us to maximize value to our customers. We may also announced an additional distribution partner or two.

Overall we feel we are in great shape at this point, ahead of the 2018 tax season and are making the right moves for the short and long term for our customers and for the company. As we've shared, we believe the tax preparation industry as a whole continues to focus consumers on the inherently reactive approach of maximizing refunds. We prefer to focus on enabling consumers to minimize taxes, increase cash flows and enable better long-term after tax outcomes, so people can do more in their lives. We're uniquely positioned to accomplish this and I'm excited about what the future holds for our customers. Davinder will talk more about our outlook for tax season in a moment.

In addition to releasing our earnings results this morning, we also announced a few key updates to the team. First, I'm excited to announce we've appointed Curtis Campbell as the new President of TaxAct. Curtis has an incredible background and skills developed through leadership positions at Capital One, Intuit, Amazon Web Services and Dell. Most recently Curtis led the Consumer Auto division at Capital One and prior to that was in a variety of executive roles at Intuit, including Product Innovation and Strategy. Curtis has a remarkable track record of driving growth and innovation. And I believe he's exactly the right fit for this business at the right time. And I know he'll do great things. He starts officially next week.

Second, adding to the excitement, we also announced today that Mike Hogan has joined us as our President of Tax-Smart Innovation. This is a new position responsible for driving our cross-platform vision and strategy for innovation, including how we best capitalize on the significant Tax-Smart opportunities we see ahead and enabling our advisors to more systematically and easily capture tax alpha for end clients, and growing our BluPrint platform. We described these types of opportunities in the past as treating Tax-as-a-Platform and Mike's hire is a tangible sign of our optimism, what can be accomplished with the right focus.

Mike was most recently at GameStop, where he drove the transformation from brick and mortar retailer to diversified retail business, including digital gaming and creation of technology brands and a loyalty program. His previous roles included heading International Marketing at Frito-Lay and Chief Marketing Officer at Dean Foods. With the additions of Curtis and Mike, along with our new CHRO, Tran Taylor, announced earlier this month, we've rounded out the team at the executive level in terms of leadership capability and domain expertise. The third update, which I am sad to announce, is that Bob Oro, our CEO of HD Vest will be transitioning out of the business for personal reasons with a goal to be closer to his extended family. Bob will stay with us full time through November 15, then he will turn his immediate focus to attending to a close family member who has recently learned of significant health challenges. We thank Bob for his work here, but understand his need to put his family first and be closer to home. He has agreed to remain on as a consultant until March 1, 2019.

We initiated the search for a new Head of HD Vest, and in the meantime we'll appoint Todd Mackay to serve as Interim CEO of HD Vest. The transition is planned for November 15, pending the associated regulatory certification and filings. Todd is a great talent and has been a valuable leader for us. He joined Blucora in 2015 after advising the company for more than a year, initially responsible for corporate development and M&A, including efforts that brought HD Vest into the Blucora family. Most recently, Todd has been a EVP and General Manager of TaxAct, leading the business in preparation for the 2018 tax season, as well as positioning it for future growth. We are pleased with what Todd has done, while leading TaxAct and are equally excited about his interim role in HD Vest. Todd has an accomplished backdrop in growth-oriented, financial and fintech businesses. Notably during his long tenure with E*TRADE, he held executive positions, including EVP of Strategy and Corporate Development, Corporate Treasurer and EVP in charge of E*TRADE's Asian broker dealer business. Additionally, Todd has served on the Board of Directors of both private and public broker dealers. The business unit is in great hands with Todd, as we continue to build on our success and business momentum.

In closing we continue to execute well across both businesses and I'm pleased that we were able to beat our financial targets for the quarter. HD Vest continues to post strong results with 6% revenue growth and strong asset growth, despite headwinds from the conversion during the quarter. Conversion was a success and will yield significant benefits for years to come. Our TaxAct business is on track for the upcoming tax season and ready to build on this year's success. And with three new members of our leadership team, we're attracting the right talent and are excited about the opportunities we see ahead.

With that I'll turn the call over to Davinder.

Davinder Athwal

Thanks, John, and good morning everyone. I'll jump right in and cover third quarter results, update our outlook for full year 2018, and provide some color on our current revenue and set the expectations for the upcoming tax season. As John mentioned, all financial metrics came in at/or above the high end of our target ranges. Comparing third quarter results with the same quarter last year, revenue is up 6% to $95.4 million. Adjusted EBITDA was down slightly, but not more than anticipated to $1.4 million as we reinvested some of the stronger-than-expected first half profit in the third quarter. Non-GAAP net loss per share improved by 25% to $0.09, on a non-GAAP net loss of $4.4 million. And finally GAAP net loss, attributable to Blucora improved by 17% to $14 million or $0.37 on a per share basis. The calculation of GAAP net loss per share for the quarter includes a charge of approximately $3.5 million or $0.08 per share related to an increase in the redemption value of a non-controlling interest in HD Vest.

This interest is held by certain members of the former management team and totaled approximately 4.5%, and is redeemable beginning in the first quarter of 2019 following publication of this year's 10-K at a price that is the higher of its carrying value or a value calculated according to contractual terms. During the third quarter, the calculated redemption value of the non-controlling interest became higher than its carrying value for the first time, and as a result was recorded at the higher value for the corresponding charge to additional paid in capital. Under GAAP accounting rules that govern the calculation of EPS, this write-up in value is treated like a preferred dividend and reduces net income attributable to Blucora that is used as a numerator in calculation of EPS.

Moving on to balance sheet, we ended the quarter with cash and cash equivalent of $88.3 million and net debt of $176.7 million, and a net leverage ratio of 1.5 times, which is down from 2.6 times in the year-ago period and flat versus the prior quarter, and we typically skew our debt paydown to the first half of each year. As a reminder, our capital allocation focus continues to be organic investment and debt paydown. So absent any compelling or strategic opportunity that may present itself, would expect further deleveraging in 2019.

I'll turn next to our segment performance beginning with wealth management. HD Vest third quarter revenue of $91.9 million, up 6% when compared to the prior year and toward the high end of our guidance range. Segment income was $12.9 million, net of clearing-related costs, up 4% versus the year-ago period and above the high end of our guidance range. Third quarter revenue was highlighted by fee-based revenue, which was up 10% year-over-year, driven by strong net flows and favorable market tailwind in the first half of the year.

Transaction revenue was up 9% versus prior year and primarily driven by variable and fixed annuities. Advisor-driven revenue per advisor for the third quarter was up 28% year-on-year and up 3% sequentially as we continue to show good revenue growth while shedding underperforming advisors. We are now at the tail end of the pruning process and expect further reductions of about 200 or so in the next few months before getting back to seeing annualized growth in advisors, focusing on quality over total count.

Closing out on revenues, retained revenue is down 4%, primarily driven by the adoption of ASC 606 at the start of the year which causes certain fees charged to advisors to be recognized net of related costs rather than on a growth basis. We added approximately $200 million in advisor net flows during the quarter which bring our year-to-date net flows to about $610 million. We continue to be pleased with our advisory net flows, this being an area of focus for us and we continue to convert brokerage assets to fee-based advisory assets, where appropriate for clients, while also driving new fee-based assets.

We ended the quarter with fee-based advisory assets of approximately $13.5 billion, which is up 13% year-over-year. Fee-based advisory assets as a percentage of total client assets is 29.1%. Total clients assets at quarter end were $46.3 billion, up 9% versus prior year.

Turning to the HD Vest full-year outlook. We expect revenue of between $372 million to $375 million and segment income of between $52.5 million to $55 million. In determining our full year ranges we consider several factors, including but not limited to the following, a broad range for transactional revenue, due to its variability, and market volatility and interest rate including impact on net flows and cash balances.

Moving on to TaxAct segment, TaxAct revenue for the quarter was $3.5 million, up 4% versus prior year. Segment loss was $6.9 million, up 11% versus the prior year as we used incremental segment income relative to plan in the first half to increase our investment in the business in the second half of this year as discussed last quarter. For the full year, we expect revenue of $187 million to $187.5 million and segment income of $83 million to $84.5 million for a segment margin of approximately 44% to 45%, as we shift certain expenses from the third quarter to the fourth.

Looking forward to next tax season, over the first half of 2019, we expect revenue growth at TaxAct of 7.5% to 10% versus the comparable period in the prior year and a segment margin in the range of 56.7% to 57.7%. This outlook is consistent with the target growth we outlined at this time last year and with a potential headwind of tax reform with our belief that we can offset any headwind from pricing and packaging adjustments.

Finishing up our third quarter performance, unallocated corporate operating expense was $4.6 million, flat year-over-year on absolute basis, but up 12% year-over year excluding approximately $500,000 of transition-related cost in the year ago quarter. For the full year we expect unallocated operating expenses of $20.5 million.

With that let's turn to the consolidated outlook for the full year. We expect revenue between $559 to $562.5 million, adjusted EBITDA between $116 million to $119 million, non-GAAP net income of between $90.5 million to $94 million or $1.83 to $1.91 per diluted share, and GAAP net income attributable to Blucora of $44.5 million to $48 million, or $0.70 to $0.82 per diluted share. Our guidance for GAAP net income per share includes a $0.15 charge related to the estimated redemption value of the non-controlling interest in HD Vest.

For those of you who are new to the Blucora story, our past practice for outlook guidance has been to provide quarterly guidance on each conference call, in addition of a first half outlook for the tax prep segment only on our October call, and then a full year consolidated outlook on our April call. One more note for modeling purposes. As John has mentioned in the past few quarters, a portion of incremental benefit from the new clearing arrangement will be shared with end clients in the form of higher yield paid on their cash balances, with the bulk of the benefit being split and simply dropping down to bottom line to enhance current earnings.

As we look at 2019 and consider the confluence of organic growth opportunity we see in the business, along with not only the clearing benefit but also a tailwind of pricing opportunities we currently enjoy in the tax prep business, we intend to flex our investment in the business in 2019 to a higher level. We will provide more granular details as we get into next year and I think about it in the following words in general. Depending on the actual number of rate increases that fed hands down between now and the end of 2019, we would look to reinvest somewhere between a third and a half of the incremental fee benefit, net of higher client yield, back into the business in the form of new growth initiatives with the remainder falling to the bottom line.

In closing, we are looking to finish out the year strong and carry that momentum into 2019, utilizing strong cash flows to further delever expense in the balance sheet and executing a strategy which we believe will lead to near term success, while enabling long-term growth. With that, I'd now like to turn the call back over to James and we'll take your questions.

Question-and-Answer Session


Thank you. [Operator Instructions] Our first question comes from Chris Shutler with William Blair. Your line is now open.

Chris Shutler

So I guess first a couple of questions on the HD Vest business. Maybe help us think through the impacts of markets on your guidance for HD Vest, the implied guidance for Q4. I think markets impact trailing commissions in Q4, but to what extent is kind of the advisory revenue build on the current quarter average assets versus on a lag?

Davinder Athwal

Hey, Chris, this is Davinder. So historically we found that there's about a 60% correlation between the market and our for-fee assets, and would say that's consistent for this quarter as well.

John Clendening

Yes, and just to add on to that, when we look at that number, we get it, then run it through the pay out grid, and so you end up getting sort of a softer ride overall as a consequence. And really too sometimes you see in brokered deal, well, I'm sure you've seen this Chris and thanks for the question. As you might sometimes have that sort of thing where cash balances actually increase a bit when the markets get a little skittish, people may throw more passion sideline. So there sometimes is a bit of a countervailing effect. So we'll see how it plays out for us.

Chris Shutler

Okay. So bottom line though you've shared was something that you have built in kind of a significantly negative markets that we've seen so far in October into your guidance.

John Clendening

I think that's fair, that's right.

Chris Shutler

And then Davinder, the comments, sorry I missed a couple of these. I think you said that next year you're going to flex spending a little. Can you just kind of go through those comments a little bit more slowly. I think you said reinvest a third to a half net of sharing, maybe just reiterate that.

Davinder Athwal

Yes, happy to reiterate. So we're talking about really the sweep benefit here, Chris. We expect to see with a rising rate environment to get additional sweep benefit, partly because of the additional rate, but also because of the new clearing contract that allows us to share higher economics. And the point I made was that to the extent we get incremental benefit from that arrangement and higher rates because of the additional sweep benefit, we'd expect to reinvest about a third to a half of that in new initiatives.

John Clendening

It's [Indiscernible] sorry, go ahead Chris.

Chris Shutler

No, I was just going to say, so could you help us like put that in dollar terms, maybe just make an assumption about rates, so that I understand exactly what you're talking about. Are you're talking about incremental rate increases from here, or are the existing ones as well that have happened that you're going to benefit from?

Davinder Athwal

Yes. So basically we -- if we think about the guidance we've given in the past, right, we've said we will see one more in December and then one in June of next year. So those are the two incrementals that we think about as we think about full year kind of run rate on this. And we said historically that to the extent that both come through, that those two additional ones come through that we would expect to see next year a benefit of -- an incremental benefit of $10 million to 12 million hitting in '19. So I think it's fair to take a third to a half of that as kind of dollars that we'd be talking about.

Chris Shutler

Okay. And let's see. I guess the only other one -- so maybe just talk about that the types of things that you are going to be spending on with those dollars. And I also wanted -- yes, go ahead.

John Clendening

Sorry, Chris. Yes, let me add one part first. So it's all on growth and as we've said consistently over the last probably three calls or so that we look at that sweep benefit number, it's a gross number we're looking to -- always be adding long-term value to the business. It's important to point out that philosophically that's where we are as a team, that's where we continue to be as a team. We realize that you build long-term value with installments along the way. So we're also very mindful of achieving the right balance in short-term, medium-term and long-term growth. So what we're saying here is that we -- on the basis of the insights we are getting to our business and the performance that we're achieving, we see some spots where we feel like we can get a great return and add value to shareholders by ramping up our investments in a couple of spots. But net-net it's all around growth. Anything that we sort of take that -- some of that increment and put into the business it's because we got a conviction that doing so is going to add value and drive growth. We've called out in the past for example that we want a better and more systematically captured tax alpha and increase the differentiation in HD Vest. We've called out, we want to ramp up the shift toward advisory assets because we know that that's going to add long-term value. So that's just a little bit of a flavor of how we are thinking -- how we're thinking about it.

Our thinking hasn't changed by the way. That's been -- we've had this mindset now for some time and I know that you folks on the call that follow our broker dealer outside businesses know that you tend to flex up a little bit in terms of spending and investing when you've got yourself in a rising rate environment. We tend to flex that down a bit, when that's not the case and we probably operate the company in the same fashion being sort of mindful of the operating context in which we're running the company. So these are not sort of major sort of swing for defenses, sort of gamble sort of things, it's really more in line with going little more quickly on some things that we've already been working on.

Chris Shutler

And then lastly I know it's somewhat of a sensitive topic around Bob's departure, but I mean, did Bob relocate to Texas and at any point, I'm just trying to get any more color there that you can provide.

John Clendening

So as you mentioned, it is sensitive, I want to really just sort of limit the comments here to the fact that Bob did choose to leave for personal reasons. It is around being closer to his family. And so you can read into that whatever you want to, on that front. I'm glad that Bob has been with us. So he's made a big impact on the company, he's going to stay with us full time as you know for a couple of weeks and be available after that. But we've got a deep bench here, we got a deep bench in HD Vest, we've got a deep bench in Blucora. It's been something that we've been working on behind the scenes here for a couple of years now. And so when these things happen, it's never anything but a bit of a disappointment but frankly people can come and go and we'll be just fine with his departure.


Thank you. Our next question comes from Brad Berning with Craig Hallum. Your line is now open.

Brad Berning

I want to follow up on the tax, third-party service providers that you are having discussions with. And would you characterize next tax season as a testing season or something that can have contribution onto revenue growth into margins. I'm just kind of wondering how you're thinking about kind of the status of the progress on that development.

John Clendening

We talked heading in the last tax season about doing some real testing and learning with regard to partnerships around the TaxAct business, and have learned a lot, last year, and we're looking to leverage those learnings into increasingly impactful outcomes on the business. And so the best thing to characterize right now, given where we are, and given competitive considerations, is that we're working hard to double down on some things that we saw provide the greatest opportunity last tax season. We've talked in the past around the terrific value that can be added to our consumers, $1,500 in some cases in terms of the impact that they can have on their financial life where it would be a very small fee to get your taxes done. So essentially here plusing up the things that work the best, we're augmenting some things that we thought were opportunities for us last year. And over time we do expect that these will be material contributors to the business. That's why we're -- where we've gone down the path that we've gone down, and I'm pleased with the progress that we're making here.

Brad Berning

And a follow up on the distribution partners that you talked that you could be working on one or two of those. Would you characterize those as more kind of incremental or would you characterize those as pretty strategic in their potential contribution from a distribution standpoint?

John Clendening

So, and again thanks for that question as well. These partnerships come in different forms. There is the partnership like you'd have in a KeyBanc relationship we had last year, where we were sort of the engine inside their experience, and you've got a different version where we're looking to add financial services partners around our consumers' tax filing experience. And then third, what we've shared over time is that we're also looking to gain new filers to TaxAct by virtue of exposing our brand in places that it haven't been before retailers, e-tailers. And so what I want to leave you with is that we're working on each of those three and we hope to have in place for this tax season, next tax season and beyond some real additive partnership arrangements in each of those areas. And you've got to think about it from the standpoint of incremental, and to what degree can these partnerships drive incremental growth and especially drive incremental growth as we continue to drive on our pricing power. We got pricing power in this business, as we showed in the past we want to look to moderate that a bit over time, but my goodness I've never seen a business with pricing power like this one. And so I want to add to that a sense of moderation on pricing power, bringing in new streams of revenue, and I feel like in each of those three areas we've got significant opportunities that can add incrementally to the growth of business.

Brad Berning

That's appreciated. And then a follow up on HD Vest real quickly is, can you talk about -- you talked about robo advising and so you're obviously trying to roll out different spectrums of the pricing in service versus value. Can you talk about what are you seeing across your different kind of levels of service and some of the changes robo advising has had out there and how has that impact pricing power at the different points of the spectrum of your customer service levels versus value? Are you seeing any pressures in there or are you seeing any opportunities?

And then lastly, just can you give an update on, obviously over the summer you kind of push harder on getting CPAs kind of lined up for the next year. Can you give us an update on how the status of the CPA program is going?

John Clendening

Sure. Thank you. Let me let me grab the first one. Initially there is -- as you know from the prepared remarks, and we said a bit about this in the last call that we have launched a couple of offerings that are new for us, VestAccess and VestStrategist. And as I think you're picking up on there, we're looking to extend the kind of the accessibility that we've got into different customer bases when we do that. And so in one case, we can work with smaller accounts, we can work with accounts that might be coming in through referral, my son, my daughter, that sort of thing.

And on top of that where we're launching the managed account platform that will have some appeal to that more sophisticated investor who's looking at little bit more of a direct control over some of the underlying assets in the portfolio. And so we're essentially extending interest in what we can do for folks. And in the case of each of these, look, it's clearly been some years since each have been launched in the marketplace. We're launching them ourselves because we see demand. We are opening accounts, we've already opened accounts [indiscernible] it's been just a couple of days, but we're opening accounts in each of those areas.

From a pressure and/or press point of view, we really look at the robo solution as more of a product with which service is wrapped around it, as opposed to a full blown complete offering. And competitors take different views on this and that can make sense based on their competitive position. But for us, the wrapper around the robo offerings is a service model and it's a service model, it's with the advisor. So they'll have less time probably to spend on smaller accounts then another account with more sophisticated need. But it's really always offered in the context of a portfolio solution, as part of a broader experience as opposed to a solo offering that has no service capability around it in the HD Vest model. And we think that's a great combination when you add a top notch advisor on top of a strong and good value account type.

The second question, Brad come back and I was telling you is that CPAs, I didn't know which context it was.

Brad Berning

Yes, just if you could update on the CPA program as far as you know looking for new partnerships and new hiring initiatives versus still the progress on weeding out. Just kind of help update us on the overall CPA, and kind of progress that you have for distribution.

John Clendening

Brad, thanks, and appreciate that. So a couple of things. I'll go to the back part of that first, as far as the pruning process and moving the process into a growth mode. We could see another couple of hundred or so departures in the next few months. But we really are at sort of last quarter if you will of that process and we'd expect a normal net growth trajectory for 2019.

That said, all signs continue to point to the business bringing in higher producing higher value potential advisors than we had been bringing in previously. It'll cause us to look at some different metrics than just the raw accounts, what we're looking for of course is growth as seen in addition of total client assets and ultimately assets under advisory. Now to get that, to drive that sorts of outcomes in a more rapid way, we do continue to have some success in bringing in larger advisors, folks who are part of bigger tax practices, I think that's what you're alluding to and that's caused us also to moderate a little bit the operating and service model around that. Not a transformative difference, but it's one that sort of mindful having a large number of folks to work with in a bigger firm of which by the way we have several today already.

But we have been successful in bringing established practices. We like that as a bit of top spin on the model that we've been perfecting over the past many, many years, but in particular the last 12 months or so we've gone through this much more thoughtful process around bringing in high potential tax professionals and then turning them into a wealth manager.


Thank you. [Operator Instructions] Our next question comes from Dan Kurnos with Benchmark. Your line is now open.

Dan Kurnos

Yes, good morning. John, I wanted to just touch on a little bit more on the last point because, if I'm not mistaken I think last quarter you guys were talking about maybe putting off some of the new wins that you had on the advisor front, just as you went through the transition. In your prepared remarks you still talked about a pretty healthy net inflow number. So I'm just wondering if you can kind of reconcile what exactly happened in the quarter or if you were able to on-board once you've got the transition completed, just how that kind of worked out? And I got a follow up on tax.

John Clendening

Hey, thanks for the question, Dan. I appreciate it. Good morning. So there are a couple of dynamics that are worth unpacking here. And you certainly got a case where you've got an existing sort of at-scale new advisor coming in, an established advisor and that's the sort of thing where you say, hey let's just sort of slow down on this. We will work in the background with you. We'll make sure to put all the effort needed into -- ultimately bringing you on board, but let's wait until we get the conversion done. And so in that case, you can see why we want to -- want to slow that down.

It's certainly true though too that you also have existing customers bringing more into an existing account. And that's a important dynamic. We want to see more and more of that. And that's not at all impeded with the conversion. We're delighted in the sort of dynamics that we're seeing there. And then also on top of that you've got folks opening a new account. And in that regard, yes, some advisors are going to want to kind of hold off on that until they've gotten past the conversion date. Others are quite happy just sort of moving ahead until you get very close to the conversion date. We saw a little bit of that dynamic too.

So it -- we sort of stepped back from it. Yes, there may have been a little bit of less of the sort of delay factor in the last two categories than we had expected. But at the same time to affirm it, we think there's been some of that behavior and you know that we've got some new advisors coming in here that we're working really hard to bring in timely and bring in effectively that we see unfolding here. And these are all -- it's all good news, right, because it's part of the -- when you look at the trajectory there that's ongoing advisory, we continue to see a lot of white space there.

I mean a lot of ways it turned out that the conversion's closer and closer to being in the rearview mirror although there is still work to do, it's kind of tally ho time for that team, because they want to continue to ramp up the penetration of advisory assets as far as comparison to total.

Dan Kurnos

Got it, that's helpful. And then just shifting over to tax, real quickly, just on the initial guide. I know you guys give some pretty good color in the prepared remarks. We know where you stand on pricing. I just want to make sure I understand sort of the nuance in terms of unit versus pricing, just as we go into the -- this next tax season. Last year we had a little bit of a surprise benefit with Turbo getting aggressive on pricing, which obviously allows you to keep your -- the pricing gap while also taking your prices up significantly. I don't know what's your expectations are for the season on pricing, or what you think the competitors will do, but if you could just help us kind of understand a little bit more of that nuance. And knowing that longer-term you've said and -- both of you, you and Davinder have said that there's still a great pricing opportunity here regardless. So, just help us -- maybe relative to competitors, do you try to still keep the gap? Do you plan on narrowing the gap even if they take pricing up? And just maybe a little bit more color there would be helpful.

Davinder Athwal

I think everything you said is still appropriate and applicable. So we do look to narrow that gap. As we go into the season, though, I think -- we haven't typically broken down the kind of information I think you may be trying to unpack. But we would say that all those things that you outlined are absolutely true. We'll look to continue to kind of closing the gap with the volumetric leader. We do plan for some price increases -- just as part of our normal course business if you will. But most importantly, I think it's -- in a way we positioned the guidance it's really around trying to continue building on the success of this year and really trying to ramp up that same limit growth. So, that continues to be the overarching strategy that we think about.

Dan Kurnos

And just one last high level -- just John or Davinder on the M&A front. The balance sheet is super clean right now. Obviously, you've gone -- you're going through the transition, so you've got your hands full, but you've come out of this thing in Q4 and it feels like you've got the engine in place, rates are rising -- at this point, how do you guys feel about adding something meaningful to either your tax or wealth management portfolio?

Davinder Athwal

Yes. I think it's fair to say, as we have for a few quarters now, we get down to this 1.X leverage, it gives us the firepower to be thinking about potential opportunities or inorganic opportunities. So in that position we would look -- as again as we've said, John and I've said many times, the first and foremost criteria for us is a strategic fit. And if you look at the business, I think there's a range of things that would fall into that category, whether it's the tax side or on the HD Vest side. Certainly, not short of opportunities to go after, I don't think, or at this point short of capital -- credit markets continue to be friendly to a rating like ours. So we think we got everything in place. It's just kind of waiting for that right opportunity to come along.


Thank you. And we do have another question from the line of Alex Paris from Barrington Research. Your line is now open.

Alex Paris

I'm -- just got a quick question. Most of my questions have been answered, but first to follow on the previous question, you have the firepower given your lower debt levels to acquire either on the HD Vest side or the TaxAct side, waiting for the right -- how about orders of magnitude? Are we talking about tuck-in acquisitions, technology acquisitions? And what your thoughts on larger acquisitions at this point or in the foreseeable future?

Davinder Athwal

Maybe the first thing to say is, look we think there's a lot of organic opportunities in this business. So as we look at the full range of opportunities and we think there is a lot to do organically before we have to really go looking for something on the outside. Having said that though, as I just said a few moments ago, if we found the right strategic fit we would absolutely make a hard push with something like that. Orders of magnitude are kind of -- what it might look like is hard to say. I think it could be anything you said, Alex, it could be a tuck-in, it could be a complementary scale, acquisition, it could be a capability type of a play. We're open to all those ideas. I don't think we ever expected at this point to looking at any one of those anymore disciplines if you will. But ultimately I think the key thing to remember here is whatever we do it's going to be around creating shareholder value, and if we can, really trying to balance that organic versus inorganic kind of range of options that we have.

Alex Paris

Okay, good. I appreciate that additional color. And then just one last question. Curtis Campbell, named President of TaxAct. Curious, does that mean there's still an opening at the CEO of TaxAct, because Sanjay was known as CEO of TaxAct and Bob Oros was known as CEO of HD Vest.

John Clendening

Hey, Alex, .John here. Thanks for the question. Good morning, happy Halloween. Last week, actually poor Sanjay was President. It's was a bit of an anomaly. Frankly, there's a difference in the title between the two in the sense that in the broker dealer world and having -- that company having been a -- HD Vest being Internet company's title CEO. We perpetuated that, but nothing telegraphed without using the same title, on Curtis, as the prior. Really excited about Curtis by the way for the combination of leadership, all the various domain expertise, character, just sort of a triple net almost with respect to getting him on board.

Alex Paris

Great. And I agree, his background looks perfect for the position. I just wanted to be clear that Curtis is now that the leader of TaxAct?

John Clendening

Yes. That's right, Alex.


Thank you. And with that, I will turn the conference back over to Mr. Clendening for closing remarks.

John Clendening

Well, thank you all for joining us today. We're pleased to report another strong quarter, continuing our momentum of the last several years. Really looking forward to next tax season, a way to provide even more value to customers through improved products and stronger partner offerings. And with the clearing conversion behind us, will position to capture even more financial and productivity benefits than we had access to previously. So overall we're positioning both businesses to capture the significant organic growth opportunities we see ahead. And we look forward to continuing to update you on our progress. Thank you everybody.


Thank you. Ladies and gentlemen, that does conclude today's conference. Thank you for your participation. You may now disconnect. Have a wonderful day.