Avantax (AVTA) 1 Nov 222022 Q3 Earnings call transcript

Good morning, and welcome to the Third Quarter 2022 Blucora Earnings Conference Call. [Operator Instructions]. I would now like to turn the conference over to Dee Littrell, Director of Investor Relations, Blucora. Please go ahead.

Thank you, and welcome, everyone, to Blucora's Third Quarter 2022 Earnings Conference Call. the section and blucora.com. of posted the information we Relations Investor our morning, earnings supplemental release on This website at joined Walters, Mehlman, Chris today Officer; I'm Marc and Chief Chief Executive Officer. Financial by

let begin, that statements as contains only we that today's me Before speak date. current discussion the of forward-looking everyone remind

including from XX-K and release Please by expectations. refer to law. Form our press As except risks actual statements, more these and current uncertainties, such, information they as recent events our update uncertainties. specific our results our our SEC XX-Q for risks filings, and required forward-looking and obligation and We include could most differ materially on no assume to and

discuss will GAAP financial both measures We non-GAAP and today.

available our of the section the Investor Our earnings to that, on discussed financial measure. release the With Chris. website full me reconciliations blucora.com let and of and each include non-GAAP applicable GAAP to measure hand are Relations nearest supplemental over at information call financial

morning. Good

Before to we agreement the Cinven million morning. an results, signed affiliate I share to business, Yesterday, we an earlier in and quarter we TaxAct $XXX made announcement of our our this software third sell for will discuss cash. Marc

end to the close expect by the the transaction We year. of

grow numerous team software value to market private extraordinary sell position discussions, customers' to TaxAct's a with as including has TaxAct in is we Insider. firm offer significant TaxAct sale we made validates shareholders. scaling Business providing deep that third-party respected remain to increasing to prepare the Cinven, customers of a step needs We of transaction. the our the highly future. by surprise marketing including scores, tax exceptional products aligned open that for to years the customer delivering X Cinven and Cinven independently with to the of the not our are continue you, the such the team's months it Cinven's While few opportunities season meeting TaxAct by a for as access accomplishments business in business-as-usual and by recognize for for may be a X to customer upcoming care the as the its by equity transition tax for acquiring the to over and a explore the best experience approach basis during to with few importance decision create We work some well period, as next multiple consistent done enhancing ensure scale. Xpert commenced right and the been the indicated TaxAct of to to combined year come upcoming with best-in-class bit free the expected tax NPS customers and are the include completely impacted to has unlock reviewers, On A the in or intends Through last customer having efforts on care operate strides space increasing our believe post-closing. in transaction TaxAct the of exemplary the of sophistication care Board the process to partnerships. and rated our has products our

their high-return over business, initiatives the growth years. firms aligning means of impressive best rebrand on will sustainable the investment Blucora our CPA in results long-term of needs the and for our delivered Following operations clients. and the and strategy which closing, we enabling couple our has to last support Avantax focus wealth financial solely executing and strategic to company's tax-focused professionals This

to shareholders. return us allow Additionally, the significant should to capital transaction

opportunities Looking for ahead, wealth we many our see business.

tax professionals, partner we wealth company, of ourselves on the professionals further as laser pure-play CPAs. focused differentiating tax-focused will be a management choice and financial As for

I'll it growth algorithm to return capital Avantax. discuss the details and both some of turn for a regarding long-term Marc Now over to other

you, Thank Chris.

the business for TaxAct shared, of reasons. As Chris is sale the compelling a of number

First, company management TaxAct monetizing we following a turnaround team. differentiated, valuation successful by meaningful the tax-focused will by a pure-play, and wealth create management a

totaling Second, the be roughly expected after-tax cash to proceeds will existing net of of used million the $XXX transaction proceeds paydown debt.

$XXX With in go-forward shareholders, to to be we X close. of the net the capital a million expected range target of to turns, debt-to-EBITDA to million be is position significant $XXX in which will X to post return

XX% has this will of deliver transition more expect XX% to our recruited Moving performances focus performance at foundation of the an the transaction will X.X% services the the basis. growth shifts would of and this KPIs. X towards high-value recruited we delivered a and the operate over assumption our mix in upward million annually least in each quarters focus revenue strength following range And invest our million across production Vest. businesses streamlined since and the X% to net position in be net since in results quarterly RIA the QX will in the million $XXX to year-to-date and year-to-date market it business in our all of on for rounding best-in-class through XXXX, the assets $XXX average industry. QX forward, the medium go-forward Avantax first from advisory we billion metrics: of we XX% be when existing a lastly, peak place, flows, advisory to Avantax, growth given position cost in year additional growth a growth growing assuming With record most in it structure representing corporate months more of assets after critical to across roughly record-breaking than retention algorithm. To project structure. A positive newly assets $X.X period, with assets, result drivers term year-to-date on rate flows, roughly both margins, grow on adjusted assets; net acquired XXXX. strong considered plus our have out following the positive XX% XXXX It's Avantax and lastly, XX strong the overall at movement. which highest this year, XX.X% to highest in EBITDA of $XXX straight company, turned range, HD with This of newly

let As growing structure, stated and efficient to of attention our ability profitability rate earlier, expectations grounded and XX% environment, the adjusted current XX% for in a are to corporate company interest our an our go-forward focus on Avantax margins streamlined The EBITDA in the back discuss to the to With profile our quarter new is results. scalable turn Chris between would X period expect which to begin me last third we it manner. to X margin take hold. TSA that, after likely months, to to

Marc. Thanks,

results, Now third highlight software I'll quarter our with segment. our tax beginning

plan retention, gains our to has built higher TaxAct through enabling long-term As on to share we customers. customer drive ARPU been profitable, acquisition a base market more of and have new growth by before, sustainable combined fueled customer unit mentioned delivering growth, to with value

past with market extension Now in that positive better tax overall has we the year. the are the third The have tax entirety of performance, and line the with performed we second expectations half visibility season. for DIY peak window of the October the across

products our the care had mobile growth, Pros, of new income capabilities our We increased for and line customer largely experts. customer coming deliver a behind confident will guidance. fully improve I slightly approach will this We 'XX on will efforts team of forecast care proposition have the access next of consumers, key maintained us few industry-leading the of season. Investing on by and scale teams. tax the TaxAct am the now value top in Tax in forms efficiency for higher utilizing and our our shift the year our and enhanced software products, This despite by for gained our With year share and ARPU best partnership tax technologies an and exceeded offering revenue and continuing that at Overall, focus free and season, further efforts to momentum us, market the improved bundling We midpoint in market. import enhanced to market most continue coverage has share our strong team customers. market data and expert operating Enhancing season prepare ahead gains or acquire for schedule, upcoming full-featured the segment marketing a including the balance to tools providing areas. value TaxAct of season to their declines. exceptional tax various metrics. stable our accelerated the of to headwind into met and refine we carry to

business. Wealth Now Management turning to our

over market. declined been impacted either associated with quarters, As negatively equity in past markets have underperformance several has assets revenue the with as driven the equities the case the

increased revenue, sweep cash in this partially portion was increase assets and the in offset rates. of cash held an by by However, driven interest

payout lower to for a professionals, decreased market saw we financial levels. due addition, In

to Beyond reach heights range across these our of indicators. financial most important new continued key metrics, we have a

net our flows. First, positive

the In quarter, have assets, net highest the since seen $XXX net we positive third XXXX. flows. For QX new QX, asset we straight million in had

Our topped year-to-date net flows million. now have $XXX

recruiting. Second,

continued financial have newly larger the from quarter recruit pipeline successfully with a firms remainder the also for to and year. great in of this assets We away recruited over professionals million $XXX

succession firm plans. and Third, acquisitions

the combined fewer totaling program. Of and XX% professionals allowed than we closed in departures financial with recruited departed professionals business enrolling to Fourth, we the about acquisitions financial production. quarter, gross since nonproducing during X on quarter, stay acquisitions anticipated, quarter-over-quarter. XX,XXX had who professionals began flat we were financial RIA This this, our us financial the with less professionals XX attrition, virtually than

high Finally, quarter. for our our coming consistently in We rate. rate XX.X% production production retention retention maintained at the

Marc, it after I'll remarks. happy questions be prepared Now answer to we'll turn and to the any over

and per are which diluted results. X% you, diluted was $X.X million, the of per our better than a of prior loss loss primarily both a million, quarter million respectively. XX% prior Non-GAAP than XX% share third Management of the by was $X.XX prior Wealth revenue than the third a XX% net the excludes decrease revenue share, meaningfully year. other or prior certain year, the quarter Total Chris. loss additional versus year detail third and for Total quarter our $XXX,XXX. third which provide better $X.X or driven of the of year. of starting factors, loss $XX.X outlook loss net million figure GAAP year, Adjusted with better of EBITDA, on $X.XX quarter some results of remainder of business. I'll Thank $XXX.X

$X.X Software Software was for revenue versus Turning a prior segment greater prior $X.X million, quarter volume year. the year, now to third the Tax extensions Tax million by improvement versus segment. driven

performance. expect year than better million, revenue. the resulting in primarily improved at the driven continue into to $X.X TaxAct improvement trend for year was Segment prior this midpoint by fourth million the $XX.X slight loss revenue a We the full quarter, operating by

Management. Wealth to on Moving

Wealth in up revenue interest million, year-over-year variable made came reported $XXX third down $XX.X to the On the for a Transaction-based included a and quarter-over-quarter, assets. income assets quarter to the rate meaningfully and basis, on of year the up operating positive offset the sequentially expenses $XXX in and quarter XX% the base million quarter, lower inflows X%. coming revenue, year-over-year. commission segment investments $X.X highly second of straight a quarter and inflows of the versus is other million was operating commission total wealth second we year-over-year of Management Management and assets the prior net sequentially rate million quarters $XX.X in began advisory down saw in compared Third revenue million, by We and with asset in lower interest management than expenses Changes changes in Wealth operating impact million environment. at assets, respectively. were by million. having year. of were expenses at driven cost third driving revenues sequentially total declines On $XX.X for dependent quarter Segment in of our the first third normalize. advisory $XX.X environment net segment $XXX XX% revenue the flows as XXXX a net was advisory which at rising despite of and up for build rising $X.X total operating third the half flat on both of client X% million, basis, million advisory increased which rate of

at is value least Our year-to-date highest since million $XXX XXXX. of flows net the

billion down efforts. bringing assets In client quarter, billion, continued to added Total the million were be increase cash $XX.X business. QX assets versus we at decreased XXX debt basis another assets $XX.X XX total $XXX.X the reflecting to with ended basis total of and up by year-over-year for another $X.X client spot broader of of recruiting last quarter points total recruited equivalents ending assets advisory cash bright of assets advisory an Newly the client XX% $XXX year-over-year assets successful and third net to We Fee-based to quarter XX% and points declines as of the percentage with a market XX.X%, XXXX. the offset million billion. partially of million. $XX.X quarter year-to-date versus

Our the loan was paid X.Xx. turn to quarter, of the $XX ratio quarter full reported to the our balance our $XX the million earn-out leverage we year acquisition that, end XXXX term in as as With related net down installment well paid final the amount let's of million. the of at the outlook. HKFS on In

segment million. income our Tax segment $XX revenue year, $XXX to of to and $XXX million million between Software the $XX million of For expect full we

expect shared per million expense. net and course, to outlook Fed year million to to million, of or levels revenue rate now segment consolidated $XX in to million GAAP of to million in includes million $XXX diluted $X.XX share based This $X.XX $XX segment attributable continue uptick Blucora $X.XX net $XXX be with to an we to revenue robust reflecting corporate a income approach see rate year of we income million, income. based $X.XX income market segment, $XX.X full million This per $XX.X that on sweep for $XXX.X of translates to income full could $XXX of Management Wealth to I quarter $XXX $XXX between to million million and, EBITDA year diluted $XXX million, $XX Management or share. current expectations and million $XXX Wealth our more in expectations. profitable Expectations to $XX outlook $XX on million million. non-GAAP to of XXXX. next million $XX million of last of between adjusted For unallocated

weakness, level levels an market revenues delivering commission continue While from down This us S&P that of show roughly at have XX% somewhat QX of million and the rates upwards decline remarks. million would year-end for of to segment our levels close XXth, X,XXX prepared as outlook of by income is and improved from $XXX X,XXX. are an end which the S&P X% of September at $XXX estimate concludes another we of now market above

call the the operator We for Operator? Q&A. will now turn to over

[Operator Instructions].

Kurnos from The with Dan first Company. question comes the Benchmark

Great.

from thought I guys, in, seen Just you I'd everything Chris.

maybe So the you message can the of Tax, give just on some us thoughts sale timing? market's Obviously, right now.

had I good momentum. a think you really guys

have up. You were guys clearly the taking that share. debt stack coming I know you

how why takes So you good color maybe capital can some a around it, little that. kind about helpful. be obviously, this remarks. bidding and of your gave But of in talk prepared return thoughts on bit all of initial now, the was just you care process, competitive And some would that Marc, just

that achieving reviewing were we our strategic business market publicly shared Until years, of there selling We've the of expense a the constantly with monitoring unusual have including variations seasons now, an for business, been options. in We've and the obstacles timing. Sure. with and associated number revenue attractive TaxAct right? for value for conditions been to and a the shift the and XXXX number pandemic XXXX

of was the do good thought, in number So extraordinary for offer and such a the the earlier team We was feel the we get year allowed time deliberate progress in business. highlighting. evaluation the of were that Cinven's process that you validates the business, an good to we that to transaction. us last commence the progress work business about it decided it explore couple a a this to the more right over years that

the environment to to and -- in. the net maybe do leverage of we cash us. for business from a sort the more this is make we a do a the think position. you about the of position, just you to to have this with how about Obviously, Marc, read interesting cash how do can and keep get Going bit to you kind I now little harder potentially cash streamlined being that opportunity on But last and maybe of just get want want out much those makes net of add, RIA on be, and -- think where about for to have M&A out here? I'll should front? you you Chris really that others But be attractive how a there an to kind sense quarter, takes? especially talked math we into do do and puts sheet forward go we you aggressively think Just about to balance how I you'll in mean,

thanks morning, Dan. this for question And the Sure.

not hold. going to I'm we exact balances get cash that So into expect to

dependent $XXX today. right return essence, just picture shareholders, the cash grow financing And million on this the million, range as markets part markets would, to well a that the macroeconomic of range. like down having allowing closes. capital and to feels of as right the something our finds leverage that do going leveraging a targeting where lot deal Xx that through between to based what sign But this obviously when in business the balance lower our significant way $XXX us considering We net to have is a ratio next the to have to closer working would what leverage expect that I a you. be leverage and that, close to work we forward ratio did getting expect of the and We of share end expected transitions to would and from to for with profitability we're Xx this that you year, end year on high improvement that And amount range generation. balance in that

to our pursue strategy. allocation will continue We capital

allocation always decisions. by buybacks capital publicly, that which we stated as serve I've make benchmark As

profile acquisitions the excited over our the We helps on-platform that about time. extremely are business and develop still

And just forward. down so going to comes balance it Dan

I Got to the business it. and just do step continues last others. That's wealth well. one, helpful. I'll for maybe management And aside mean,

You gave us long-term outlook. underlying market assumption in your

the Marc, that you've guys can that in way historically get your the numbers. rates sustainable there. said taking longer-term and think balance more at it? you're that kind I and right of drive kind probably look of or to continue X% to are net inflows to kind I of that Is assuming to organic of, you the you to, productivity X.XX% closer assume trajectory way

revenue guidance provided the say are would which moving static that I or a one in rates environment, not really we in outlook is figures long-term around.

would So ex rates. I look that at

So X% other it's those assumption I spoke market growth baseline the coming elements from a that with difference about.

Okay. Well, congratulations selling for on good quarter Wealth. and Tax another

I So aside will guys. step

question next Fitzgerald. Siegler comes The Cantor from Instructions]. [Operator with Josh

the on without about the you Tax Congratulations see Will potential on on sales. repetitive well focus learning And to more results the TaxAct. client evolving without little do moving funnel as Avantax TaxAct? for curious as advantages vision your a cross-sell forward on Avantax and realizing I'm generating still how Alpha. your

Yes.

on Fortunately, quite been the our team and results have has for years, strategy been strong. business sustainable a growth multiple executing

forward offer strategy. is wealth CPAs, which And with so those to We want a that to who tax firms, provider wealth works continue right, management. want tax-focused going firms the execute to strategy, with the those who plan is to align to best be

us. as transition business, best-in-class their are we is business, mix shifts some well be businesses. will them grow as a with have enhancing our on-platform slightly focus faster the which into that And on advisory supporting a M&A fueled so the also right to which margin And growth service, then by to going and RIA professionals help it the growth the gradual efforts marketing on the for continued is of financial providing in our

with really continue of to And focus, that level that can execute some forward. believe going so strategy heightened and strong we see results can a we we

expect business anything of within built departure marketing have will the capability the degradation tech capabilities any the TaxAct of come last team, of do leveraged and from in has lost over or performance very given separation. that terms strong not the of that business, with know-how TaxAct that functions processes built we a that couple has a we've -- In the with the really be lot we business, Avantax the a associated years, and and that have strong

risks further I appreciate has And have wealth business? ongoing experience mix Avantax, macro outlook performance towards equity there then the market a management business impact flows the flow diving such this recessionary aside that we very color. Specifically, any your are little as or That's the poor from do perhaps advisory net if on model for into helpful. down? shift slowdown global from gross

fortunate, kind one, rate of as really uncertain in there risks the historically. the current highlighted tend right, to weakness. of -- metrics equity the feel we've of are impact, some you've market equity which trump of risk, kind our environment, are is Clearly, you We virtually macro market on impacts in operating the Yes. strong. seen interest what sweep right? all cash biggest an talked very about economic is And even The environment, this

And optimistic environment. a quite even the recessionary in about so outlook potential we're of the business

Understood. Congratulations once again.

[Operator Research. Instructions]. question Paris The from next with Alex comes Barrington

and the outperformance on quarter the Congratulations in sale of the TaxAct.

couple year-end. debt a Net was of TaxAct I you're after-tax $XXX the million and That about questions, clarifying of $XXX year-end. debt in sale expecting by of guess. X/XX leaves from in million by Just proceeds you net million, as questions,

have XX-Q kind Xx. to to and the forward? run return off which you're What's maturity Xx don't You inorganic pay to debt it business sounds And and shareholders growth organic the to like going schedule growth want not open. fund that leaves the to more you're initiatives. -- I the of debt at implying to going the What's all

it us capital back expectation, us the of then that into doing expectation generates basis continue basically whether us capital significant would an especially back that to will which buybacks we a going basically and earlier, if completely shareholders, allow to ongoing grow back fortunate to to Alex, meaningful I between mentioned year, capital million be to this of that whether form the the refinancing return operate close, the a cash Xx, be shareholders. course of takes acquisitions, next our platform not number business, the business regular on things just to excess that all, paying We're down which $XXX do this the $XXX back. Xx flow, enables and allowing refinance on the investments entire so ordinary to basically to at all to debt return majority, And to up return point to is

Great. And new will is that services then is you of said there temporary Blucora to going services that the agreement that be provide to correct? owner a TaxAct,

Yes.

a we'll about facilitate So providing really business. beyond. effective variety services the incredibly a tax of and to way through be smooth They the transition, excited season right? They're operate to then wanted

do And some business. services across so shared have operate we that the

And those so period some services we'll of be time. for providing

in your those compensation come then in for another And the P&L, services assume? would providing I through line

Yes, Alex, to able sure but we'll the create up, mechanics some show clarity make we're for through actual those. of we'll to work

to Okay. XX%. growth question, XX% to And return management wealth margins over overhead organic X.X% and business EBITDA XX% you costs last adjusted term, in expected associated then the forecast? are is that corporate or in for What and the broker-dealer medium to assumption the making and pure-play

Yes.

number. all-inclusive an it's So

start to take its signing is as order period first After So to delighting will customers. continue close. TaxAct lot and tools It's we in after foremost, a our we goal that that needs of need have where ensure hold. it has services where get this that, to all the or -- efficiencies the we to savings transition from that to

business unallocated to number. call together profile. And all-encompassing create an today so we coming corporate core what It's wealth the plus that management it's margin

to share bit next closer As earnings, we share more to be we'll close, the get quarter's a detail. in we able

Okay. color. for additional Well, that congratulations the thanks great. the and sounds Again, quarter, on

Chris turn closing like the Walters This concludes would back session. remarks. conference I any question-and-answer over our for to to

all to Thank and us Blucora. joining for today We'll speak your in interest next you quarter. for you

Thank conference today's has presentation. The attending for now you concluded.

may disconnect. You now