Q1 2021 Blucora Inc Earnings Call
[music].
Ladies and gentlemen, thank you for standing by and welcome to the first quarter 2000 of 'twenty, One Nucor earnings conference call. At this time all participant lines are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask the question during the session you will need.
The press Star then one of your telephone please be advised of today's conference is being recorded if you require any further assistance. Please press Star then zero I would now like the hand of the conference over to your host the the trout Investor Relations. Please go ahead.
Thank you and welcome everyone to the courts first quarter 2021 earnings conference call.
By now you should have had the opportunity to review of a copy of the earnings release and supplemental information.
If you have not reviewed these documents they are available on the Investor Relations section of the website at the core of Dot com.
I'm joined today by Chris Walters, Chief Executive Officer, and Marc Mehlman, 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 that speak only as of the current day.
As such they include risks and uncertainties and actual results kind of events could differ materially from our current expectations.
Please refer to risk factors in our most recent forms 10-K and 10-Q for more information on some specific risks and uncertainties.
We assume no obligation to update our forward looking statements, except as required by law.
We will discuss both GAAP and non-GAAP financial measures today.
Our earnings release and supplemental financial information are available under the core of Dot Com and include a full reconciliation of each non-GAAP financial measure discussed to the nearest applicable GAAP measure.
With that let me hand, the call over to Chris.
Thank you Lee and good morning, everyone.
It's been a busy but productive first quarter of 2021 as we continue to execute on the vision, we have laid out for the business.
We've made great strides in positioning the business for long term sustainable growth.
All while focusing on expanding profitability.
Before I delve into the details of the quarter I would like to address the annual meeting.
First on behalf of the board I want to thank shareholders for their support as we continue to execute on the strategy for the company.
That said I want to acknowledge the valuable engagement and feedback we received during extensive conversations with investors and reiterate the boards and managements commitment.
Toward effecting positive change and maximizing value for all shareholders.
Transparency is essential to this commitment.
During our Investor day planned for June 15th who will dive into the long term financial projections for our two business segments, including both the significant value that can be created by executing sustainable growth strategies for each segment as well as the crossover benefits between them that can deliver incremental growth.
And value to our shareholders financial professionals and consumers.
Now that we are nearing the end of the extended 2020 tax season.
Looking forward to engaging with our investors around the Kpis and financial expectations of the strategy on which we are executing.
I want to reiterate our commitment to driving shareholder value in whatever form that may take.
Our board takes the diversity of thought and perspective seriously.
Within the boardroom across the company and from our shareholders.
And has and will continue to evaluate all avenues for driving maximum shareholder value.
With that let's turn our attention towards the highlights of the first quarter.
As you know the IRS extended the 2020 tax filing deadline to may 17th for most states and for Texas, Louisiana, and Oklahoma to June 15th.
While this had some impact on our business having learned from our experience last year, we are in a much better position to manage the effects of this change.
As Mark will discuss shortly.
The current 2020 tax season, we haven't seen of material financial impact from this change relative to the 2019 tax season.
Other than as expected.
The change and the timing of revenue, which mark will address.
As it relates to the season with a critical 12 days left we are upping our guidance for segment income driven by <unk> and more efficiently executing on our revenue growth performance.
We will provide more detail on the drivers of performance during Investor day.
A few observations on the tax act business that we can share at this point.
We have embraced our value position.
We lowered federal pricing this year for the first time in at least five tax seasons.
Depending on the point in the season, we got a 20% to 50% discount relative to the market leader.
We believe this pricing advantage and messaging campaign will grow and awareness over the next several tax seasons.
We continue to have strong NPS scores, which should translate into attractive retention metrics for the business.
Which is what we've seen off of last year's N. P. S improvements.
Through this point of the season relative to last year.
Further as expected the launch of our hybrid of assisted offering has enabled us to drive our pool the season.
For the first full year, we are pleased with the results and the learnings and see this as a launching pad for even greater adoption and growth in the future.
As we have discussed in the past there are meaningful governmental restrictions in place limiting our ability to use customer data for marketing purposes without customer consent.
Our goal of driving consent across our user base has been largely successful with approximately 72% of customers providing consent.
As of April 30.
This customer consent facilitates the engagement throughout the year.
Last week, our new marketing team has made great strides in the first full season.
As a reminder, we revamped virtually the entire marketing organization and launched new technology tool for the season.
We've been able to execute on a number of tests throughout the season that of <unk>.
Divided us with insights helped us maximize the cost effective growth potential of the business.
There's more work to be done, but we are pleased with the way. This team has executed the season.
We look forward to providing more detail on our progress in these areas and others, including their impact on Kpis and financial results.
The upcoming Investor day.
Moving on to wealth management.
As we have discussed the core.
The independent financial professionals of experienced a significant amount of change over the last several years.
As would be expected with clearing platform changes integration of acquisitions and changes in the regulatory environment.
This has resulted in some predictable turnover, including during the first quarter.
But in most cases attrition has been in line with our expectations as we continue to improve financial professional relationship Management Act.
The accelerated service and operational improvements and rollout technology related experience enhancements.
Throughout the year.
We remain optimistic about the potential.
Of our differentiated tax focused wealth management strategy.
We're also very encouraged the top quality financial professionals from other firms are taking notice of the all of our efforts and choosing to affiliate with us.
And now a few highlights for the quarter.
The business set a record in March for the greatest amount of gross inflows into advisory at $2 $1 billion.
We believe this is evidence that our efforts and focus towards comprehensive financial planning and advisory are starting to take hold.
Of the 143 departing financial professionals in Q1.
117 for approximately 82% were non producing financial professionals, which is defined as less than $50000 and rolling gross production.
This compares to 71% of departing financial professionals in Q4 2020.
Our production retention rate in Q1 with 98 per cent compared to 96 per cent in Q4 2020.
Our business reached the significant milestone in Q1 with our first financial professional exceeding $10 million gross dealer concession.
For advisor driven revenue.
While at the same time during the quarter, we brought on 67, new financial professionals with 18 of them.
Newly licensed the affiliates entering the wealth management industry.
We continue to be of destination for both large experienced firms as well as those who seek a pathway towards greater diversification in the revenue strength.
R R a growth and in house ex succession plan, whereby we provide an opportunity for independent financial professionals to be acquired into the Ari continues to accelerate.
With more than $3 billion in assets in our pipeline as of April 30.
Early acquisitions executed as part of the strategy have delivered above expectations through Q1.
The opportunity is compelling for independent financial professionals, who want the continuous serve their clients.
And grow their business with a different affiliation model for those who are interested in of turnkey succession plan.
We acquired two critical technology and service capabilities year to date.
The first guideline technologies announced in March.
It is designed to help our financial professionals with one of their most in demand needs.
Increased client prospecting.
The second is our recent acquisition of signify.
Which accelerates our ability to offer value added marketing services to our financial professionals.
For customized.
Agency style of marketing services.
These two acquisitions provide more resources to our financial professionals to drive growth in their practices over time.
Stepping back.
We remain committed to our strategy to improve the financial professional and customer experience to.
To complete the integration of work from first global and each campus.
Now of VAT tax planning partners.
And lastly to facilitate of natural evolution of our assets towards comprehensive financial planning.
And we're in the best interest of the client and advisor relationship.
Ultimately, we believe this will benefit and clients are financial professionals and the van tax.
The environment within which we operate continues to pose challenges and I'm proud of the team for their unwavering focus on execution.
Whether it would be IRS triggered challenges with the stimulus payments natural disasters affecting our employees based in Iowa, and the Dallas Fort worth area of proxy contests for another extended tax season.
Our team continues to focus on executing the strategy.
Our businesses and the strong position our strategic shift within wealth management is well underway and our plans to drive growth and expanding margins within tax are on track.
With that I'll turn it over to Mark to review, our Q1 performance and full year outlook.
Thank you, Chris and good morning, everyone.
I'd like to provide additional detail on our first quarter results and our outlook for Q2 2021 and full year.
As a reminder of last quarter's call. We did not provide Q1 of the salt business guidance in light of the potential delay of the tax season.
Did provide guidance for revenue and segment income for wealth management.
Along with expense for on allocated corporate activity.
Of a reference of my comments comparisons to our guidance range is where applicable.
Starting with first quarter consolidated results.
Revenue of $278 $4 million.
GAAP net income of $27 $6 million or <unk> 56 cents per diluted share.
Embedded within our GAAP net income figures are a $6.3 million true up associated with the tax planning partners for belly ache chaos as the earn out which as I have mentioned on previous calls we expect to be at the full 30 million dollar amount for the first of two payments.
For the accounting treatment it doesn't reflect that number until we approach the earn out date.
And approximately $2 $75 million impact associated with the proxy contest where.
So we expect an additional approximately $750000 and cost of final fees are paid.
Income tax provision expense of $1 $7 million.
The adjusted EBITDA, which excludes the certain other factors was $64 $6 million.
Non-GAAP net income was $51 million for <unk>.
Dollar for cents per diluted share.
Turning now to tax preparation of Sim.
The Q1 2020, the timing of revenue generation was impacted by the delay of Hiatal debt lives and demand shifting out of Q1 2021.
<unk> revenue was 120 for $8 $9 million.
Segment operating income was $59 million.
Moving onto of wealth management.
The first quarter reported wealth management revenue was $154 $5 million at the high end of our guidance range and up 3% sequentially, which included a 5% increase out of hand tax wealth management.
This revenue growth was primarily driven by market improvement and a 13% sequential increase in transaction Commission revenue.
A P P revenue declined modestly sequentially.
Two of loss of assets stemming from post the acquisition of attrition.
But of year over year basis total wealth management revenue was up 7%, which included revenue of the $9 $3 million from the fantastic operating partners.
Wealth management segment operating income came in at $19 $4 million close to the high end of the target range.
By revenue performance and inline expense expectations.
Total client assets increased 39% year over year to $84 8 billion, which included approximately $5 billion from the addition of the day of tax planning partners.
Fee based advisory assets were up 56% year over year to $36 $8 billion with advisory assets as a percentage of total client assets ending the quarter at $43 four per cent.
We saw net inflows into advisory assets of $369 million with total client assets, having net outflows of $869 million, which relates to a shift to on platform of assets, which has increased the ROA for the business.
At the corporate level on the <unk>.
Allocated corporate G&A expenses came in at $5 $7 million considerably better than the guidance range.
During the quarter, we had about a $1 million of acquisition and integration related costs.
Primarily associated with Ace cash that's in wine Chi with $6 3 million attributed to the mark to market of the H K S. S earn out provision.
We ended the quarter with cash and cash equivalents of $191 $8 million.
And net debt of $379 million.
Our reported net leverage ratio at the end of the quarter was three five times compared to four three times at the end of 2020.
As we assess the priorities for capital allocation, we will focus on our own like accelerators, such as investments and acquisition opportunities.
And we will assess these versus alternatives such as debt pay down or other opportunities.
Remain committed to having a long term net leverage ratio below three times.
With that let's turn to our second quarter and full year of 2021 the outlook.
For the second quarter, we expect tax software segment revenue of between $82 five to $87 $5 million the segment income of $53 million to $58 million.
For our wealth management segment, including a P. P b.
We expect second quarter revenue of one.
155.5 to 161 $5 million and segment income of $17 five to $19 $5 million.
On a consolidated basis for the second quarter again, including the P. P. We expect total for the core revenue of between $238 million to $249 million.
The EBITDA of between 63 and $75 million.
Non-GAAP net income of 47 to $55 $5 million.
For 94 to $1 11 per share.
And GAAP net income attributable to <unk> of $22 five to $31 $5 million.
45 to 63 cents per share.
This outlook includes expected second quarter unallocated corporate level operating expenses of $7 $5 million to $7 million.
For the full year, we expect tax software segment revenue of.
Between 212.5 and $218 million.
Segment income of 72 to $76 $5 million.
For our wealth management segment, we expect full year revenue, which includes a P. P of between 631.5 to $649 5 million and segment income of 79 to $83 $5 million.
This translates to consolidated full year outlook again, including a P. P of revenue of between 844, and 867 $5 million adjusted EBITDA of $122 five to $132 $5 million.
Non-GAAP net income of $67.5 million to $80 million.
$1 30 for since two $1 60 per diluted share and.
The GAAP net loss attributable to Bukhara of 12 point of $5 million to net income of $2 million or a net loss of 25.
Net income of four cents per diluted share with $28 five to $27 $5 million in corporate unallocated expense.
This concludes our prepared remarks, we will now turn the call over to the operator for Q&A operator.
Thank you.
The ask a question you would need the press Star then one on your telephone to withdraw your question. Please press the pound key.
Our first question comes from the line of Jackson Ader with Jpmorgan. Your line is now open.
Great. Good morning, guys. Thanks for taking my questions.
First one from a from a.
High level on the tax debt when.
When you think about all of the big influx of stimulus filers from the year ago from the 2019 taxes for the 2020 season.
Are they sticking around this year and in 2021.
Well so last year the.
Dynamic you just described ultimately did contribute to really really healthy market growth.
Hard to predict how much of that will stick around until we get through them. Obviously, when we get to the end of the season right now.
What we saw early in the season.
Was slowness in demand for the entire industry due to the the confusion about some of the.
Stimulus payments.
The unemployment payments, but ultimately we expect some of those units to to stick this year, but we won't really know until the end of the season.
Okay.
And there was the comment I think you made Chris on revenue per return.
Just to clarify are you, saying that you expect revenue per return to actually be up year over year, whereas the better than than you guys had expected entering the taxi.
Better than we expected coming into the Texas.
Okay, alright that makes sense.
Last one on tax.
Okay, you mentioned, Mark 12 days of that.
How do you how do you sit relative to where I think you would've expected debt with 12 days left regardless of when the the deadline.
12 days versus 12 days expectations any sales.
Yes.
I'm, sorry, Mark Douglas the out of <unk>.
Could you share.
Sure.
What I'd say is we've reaffirmed our guidance on the revenue side, and obviously upped our guidance of bad from a profitability perspective, and so relative to our expectations. We feel good heading into the final 12 days.
The curves this year and how consumers have been filing of has certainly been different than what we've seen of course, the last 20 years of our experience. Nonetheless, the based on our assessment of the market.
We feel good with the amount of demand Thats left and our expectations of what our share of will be.
Okay alright, thank you.
Yes.
Thank you. Our next question comes from the line of Dan kind of with the benchmark company.
Your line is open.
Thanks, Good morning, guys.
Just maybe Chris I know, you're obviously trying to save some dry powder for the Investor day, but just.
The initial thoughts on the hybrid assist the attach rates and to the extent that you are pushing it or looking to.
Expanding the product feedback just anything that kind of gives us some of help on how the initial rollout or expansion of scone.
Sure. So we will share more detailed metrics after we get through the end of the season and in the Investor Day, I would say generally.
Really excited I'm, having officially launched hybrid assisted in January of this year, our team put a ton of work into it over the last couple of seasons to be ready.
That said, it's the first year and there are a number of potential outcomes in terms of how it could play out.
We're we're happy with what we've seen so far and we'll share more specifics when we get the Investor day.
And then again, you know I'm not trying to push the envelope, but just in terms of.
Getting users sort of following up on the first question getting users to move up funnel.
You talked a lot about NPS I think that's helpful. In retention rates how much education are you guys doing I know you raised your profitability a little bit on the tax side, which I think is comforting given sort of the massive and tax season, and who knows what pricing will do the Alaska.
Kind of rush here, but to the.
The extent that you guys are out there pushing brands talking about the price and you talk talking about the delta in pricing, but then.
Even ex hybrid assist just trying to get people the sort of move up funnel just the education efforts there.
No.
Any kind of granularity you can give us around sort of what you guys are doing.
Without the specific kpis to incentivize worked to educate people to make that decision.
So to drive ARPA of higher.
Sure well so first when we talk about our true coming in a bit more favorably than we anticipated, but there is the that's driven by higher attach rates across.
A variety of the elements of our offering.
In terms of what we're doing to educate people about our value pricing and.
Offering elements like hybrid assistant.
It's both direct outreach to our customer.
Customers and former customers.
The email communication, we also have you.
Very clear communication that the.
The beginning of the start of our product and then throughout the product.
The different elements of our offering and then finally, we are using of multichannel marketing strategy and both value and the feature set or elements of our service offering are highlighted extensively through both traditional media.
TV and radio as well as well.
All elements of performance digital channels and based on where people sit as they move through the.
Of the process of completing their taxes right, we communicated different things.
To appropriately high what's relevant for them.
Based on what they've they've done so far.
Got it that's helpful. And then maybe just last one for Mark.
I think there was some noise.
Especially kind of from.
From an expectation perspective of regionally around the one Q wealth management.
Net income guide, which you then posted a little bit margin attrition of sequentially, but.
No nothing to write home about seeing that a lot better the tissue.
It does seem to sort of half of the thing set up so I'm. Just wondering if you could give us maybe some of the puts and takes as we just think about wealth management segment income.
Sure.
The.
We shared we came in just shy of the high point of our guidance and coupons.
For making certain investments to ensure the experience for financial professionals.
As of what they deserve and so some of that hiring took place a little bit later in the first quarter than we would have initially anticipated. There are also certain one time expenses associated with the in person events things of that nature, and so from quarter to quarter Youll have nonrecurring expense items as well as the <unk>.
<unk> associated with head Count places to win.
We made.
Deliver a certain profit number of versus another.
For quarter versus another.
The drivers really just has to do with one of the hiring of takes place and when some of those one time expenses come into play.
But when you think about the full year guidance of what you provided.
We feel good about where.
What will come in relative to that range.
Is that the in person events, I guess pick up those vaccinations increase I wish the pits.
Correct and it's one of the things that we're really excited about we tend to see greater engagement with our financial professionals as you can imagine during those in person events and Theres also for really great positive knock on effect in terms of their ability to engage with their customers.
Once they come together as a community and share of ideas of whats working of across the landscape.
Got it perfect. Thanks for all of the color I appreciate it guys.
Yes.
Okay.
Thank you.
As a reminder to ask a question you would need the press Star then one on your telephone.
We do have a follow up question from the line of Jackson Ader with Jpmorgan. Your line is now open.
Thank you I'm back just a couple of follow ups ended the net.
The proxy vote is over but you know.
Just.
I would like to ask.
Any.
I don't know any additional kind of commentary you have on whether there will or won't be I'm kind of.
Engagement with with the like the continued active investors and.
Any kind of formal process, we saw that there was actually an announcement.
For the wealth management business of bid for the wealth management business before the boat curious if you've heard of any other interest other than the one that was made public.
Yeah. So we don't comment on speculation of what.
I would say is what we've shared publicly before which is our board and management team are focused on all different approaches to create value where maximize value for shareholders and so we'll continue to evaluate all options in terms of engagement with shareholders right. We.
Engage with all shareholders, who have interest in are are deeply value of the perspective, and so we'll continue our past practice of doing so.
Okay.
And then just speaking of the board.
The announcement this morning.
The appointment of Peanuts Aerie.
Curious just what kind of.
What expertise she will be able to bring to either of the Tac for the wealth business or both.
Yeah, So Tina joined the board.
Months ago, and we're thrilled to have team of joining she has extensive experience in transforming organizations from a performance perspective and culturally and so.
As we have put together multiple businesses over the years, it's important that we drive cultural alignment within the company. She also has extensive experience in media and as you know one of our largest line items in terms of cost is actually spending on media to support the <unk> business and so forth.
Thrilled to have for both general management experience, but also for leadership experience and cultural transformation of performance transformation and deep understanding of the media landscape.
Okay, Alright, thank you very much.
Thank you.
There are no further questions I will now turn the call back to transfer all of this for closing remarks.
Great. Thank you all for joining us today and for your interest in Blue corner will speak to you next quarter.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
[music].
[music].
[music].
[music].
Ladies and gentlemen, thank you for standing by and welcome to the first quarter 2000 of 'twenty. One look for earnings conference call. At this time all participant lines are in a listen only mode.
For the speaker's presentation there'll be a question and answer session. The asked the question. During the session you will need the press Star then one on your telephone. Please be advised of today's conference is being recorded if you require any further assistance. Please press Star then zero I would now like the hand the conference over to your House day, the trout Investor Relations. Please.
Go ahead.
Thank you and welcome everyone to the the courts, the first quarter 2021 earnings conference call right.
By now you should have had the opportunity to review the copy of the earnings release and supplemental information.
If you have not reviewed these documents they are available on the Investor Relations section of our website after the call of Dot com.
I'm joined today by Chris Walters, Chief Executive Officer, and Marc Mehlman, Chief Financial Officer.
Before we begin.
And everyone that today's discussion contains forward looking statements based on the environment as we currently see it.
Speak only as of the current date.
As such they include the risks and uncertainties and actual results and events could differ materially from our current expectations.
Please refer to risk factors in our most recent forms 10-K and 10-Q for more information on some specifics.
<unk> and uncertainties.
We assume no obligation to update our forward looking statements, except as required by law.
We will discuss both GAAP and non-GAAP financial measures today.
Our earnings release and supplemental financial information are available under the current dot Com and include a full reconciliation of each non-GAAP financial measure discussed to the nearest applicable GAAP measure.
With that let me hand, the call over to Chris.
Thank you <expletive> and good morning, everyone.
It's been a busy but productive first quarter of 2021 as we continue to execute on the vision, we have laid out for the business.
We've made great strides in positioning the business for long term sustainable growth.
While focusing on expanding profitability.
Before I delve into the details of the quarter I would like to address the annual meeting.
First on behalf of the board I want to thank shareholders for their support as we continue to execute on the strategy for the company.
That said I want to acknowledge the valuable engagement at the feedback we received during extensive conversations with investors and reiterate the boards and managements commitment toward effecting positive change and maximizing value for all shareholders.
The transparency is essential to this commitment.
During our Investor day planned for June 15th we will dive into the long term financial projections for our two business segments, including both the significant value that can be created by executing sustainable growth strategies for each segment as well as the crossover benefits between them that can deliver incremental grew.
And value to our shareholders financial professionals and consumers.
Now that we are nearing the end of the extended 2020 tax season.
We're looking forward to engaging with our investors around the Kpis and financial expectations of the strategy on which we are executing.
I want to reiterate our commitment to driving shareholder value in whatever form that may take.
Our board takes the diversity of thought and perspective seriously.
Within the boardroom across the company and from our shareholders.
It has and will continue to evaluate all avenues for driving maximum shareholder value.
With that let's turn our attention towards the highlights of the first quarter.
As you know the IRS extended the 'twenty 'twenty tax filing deadline to may 17th for most states and for Texas, Louisiana, and Oklahoma to June 15th.
While this had some impact on our business having learned from our experience last year, we are in a much better position to manage the effects of this change.
As Mark will discuss shortly during the current 2020 tax season, we haven't seen of material financial impact from this change relative to the 2019 taxes other than as expected.
The change and the timing of revenue, which mark will address.
As it relates to the season with a critical 12 day of left we are upping our guidance for segment income driven by <unk> and more efficiently executing on our revenue growth performance.
We will provide more detail on the drivers of performance during Investor day.
A few observations on the tax act business that we can share at this point.
We havent braced our value position.
We lowered federal pricing this year for the first time in at least five tax seasons.
Depending on the point in the season, we got a 20% to 50 per cent discount relative to the market leader.
We believe this pricing advantage and messaging campaign will grow and awareness over the next several tax seasons.
We continue to have strong NPS scores, which should translate into attractive retention metrics for the business.
Which is what we have seen off of last year's N. P. S improvements through this point of the season relative to last year.
Further as expected the launch of our hybrid assisted offering has enabled us to drive our pud this season.
For the first full year, we are pleased with the results and the learnings and see this as a launching pad for even greater adoption and growth in the future.
As we have discussed in the past there are meaningful governmental restrictions in place limiting our ability to use customer data for marketing purposes without customer consent.
Our goal of driving consent across our user base has been largely successful with approximately 72% of customers providing consent.
As of April 30.
This customer consent facilitates the engagement throughout the year.
Last week, our new marketing team has made great strides in the first full season.
As a reminder, we revamped virtue of the entire marketing organization and launched new technology tool the season.
We've been able to execute on a number of tests throughout the season that of <unk>.
Provided us with insights that helped us maximize the cost effective growth potential of the business.
There's more work to be done, but we are pleased with the way. This team has executed this season.
We look forward to providing more detail on our progress in these areas and others, including the impact on Kpis and financial results.
At the upcoming Investor day.
Moving on to wealth management.
As we have discussed the cores independent financial professionals of experienced a significant amount of change over the last several years.
As would be expected with clearing platform changes the integration of acquisitions and changes in the regulatory environment.
This has resulted in some predictable turnover, including during the first quarter.
But in most cases attrition has been in line with our expectations as we continue to improve financial professional relationship Management Act.
The accelerated service and operational improvements and rollout technology related experience enhancements throughout the year.
We remain optimistic about the potential.
Of our differentiated tax focused wealth management strategy.
We're also very encouraged the top quality financial professionals from other firms are taking notice of the all of our efforts and choosing to affiliate with us.
And now a few highlights for the quarter.
The business set a record in March for the greatest amount of gross inflows into advisory at $2 $1 billion.
We believe the evidence that our efforts and focus towards comprehensive financial planning and advisory are starting to take hold.
Of the 143 departing financial professionals in Q1.
117 for approximately 82% were non producing financial professionals, which is defined as less than $50000 and rolling gross production.
This compares to 71% of departing financial professionals in Q4 2020.
Our production retention rate in Q1 with 98 per cent compared to 96 per cent in Q4 2020.
Our business reached the significant milestone in Q1 with our first financial professional exceeding $10 million gross dealer concession.
The advisor driven revenue.
While at the same time during the quarter, we brought on 67, new financial professionals with 18 of them.
Newly licensed affiliates entering the wealth management industry.
We continue to be of destination for both large experienced firms as well as those who seek a pathway towards greater diversification in the revenue streams.
R R a growth and in house succession plan, whereby we provide an opportunity for independent financial professionals to be acquired into the R. E continues to accelerate.
With more than 3 billion in assets in our pipeline as of April 30.
Early acquisitions executed as part of the strategy have delivered above expectations through Q1.
The opportunity is compelling for independent financial professionals, who want the continuous serve their clients and.
And grow their business with a different affiliation model for those who are interested in of turnkey succession plan.
We acquired two critical technology and service capabilities year to date.
The first guideline technologies announced in March.
It's designed to help our financial professionals with one of their most in demand needs.
Increased client prospecting.
The second is our recent acquisition of signify.
Which accelerates our ability to offer value added marketing services to our financial professionals.
For customized agency style of marketing services.
These two acquisitions provide more resources to our financial professionals to drive growth in their practices over time.
Stepping back.
We remain committed to our strategy to improve the financial professional and customer experience to.
To complete the integration of work from first global and each campus.
Now of events ex funding partners.
And lastly to facilitate of natural evolution of our assets towards comprehensive financial planning.
And we're in the best interest of the client and advisor relationship.
Ultimately, we believe this will benefit and clients are financial professionals and the van tax.
The environment within which we operate continues to pose challenges and I'm proud of the team for their unwavering focus on execution.
Whether it would be higher ex triggered challenges with the stimulus payments natural disasters affecting our employees based in Iowa, and the Dallas Fort worth area of proxy contest for another extended tax season.
Our team continues to focus on executing the strategy.
Our businesses and the strong position our strategic shift within wealth management is well underway and our plans to drive growth and expanding margins within tax are on track.
With that I'll turn it over to Mark to review, our Q1 performance and full year outlook.
Thank you, Chris and good morning, everyone.
I'd like to provide additional detail on our first quarter results and our outlook for Q2, 2021 and full year.
As a reminder of last quarter's call. We did not provide Q1, the salt business guidance in light of the potential to lay of the tax season, but the.
Did provide guidance for revenue and segment income for wealth management.
Along with expense for unallocated corporate activity.
Of a reference in my comments comparisons to our guidance range is where applicable.
Starting with first quarter consolidated results.
Revenue of $278 $4 million.
GAAP net income of $27 $6 million or of 56 cents per diluted share.
That is within our GAAP net income figures are a six point screen millions of dollars true up associated with the of AMT tax planning partners for BLA H cafes earn out which as I've mentioned on previous calls we expect to be at the full 30 million dollar amount for the first of two payments.
Turning treatment doesn't reflect that number until we approach the Earth day.
And approximately $2 75 million dollar impact of associated with the proxy contest where.
We expect an additional approximately $750000 in costs as a final of fees are paid.
Income tax provision expense of $1 $7 million.
Adjusted EBITDA, which excludes these and certain other factors was $64 $6 million.
Non-GAAP net income was $51 million.
$1.04 per diluted share.
Turning now to tax preparation.
The Q1 2020, the timing of revenue generation was impacted by the delay in Ohio that lives and demand shifting out of Q1 2021.
Cash revenue was 120 for $8 $9 million.
Segment operating income was $58 $9 million.
The first quarter reported wealth management revenue was 154 of $5 million at the high end of our guidance range and up 3% sequentially, which included a five per cent increase at a fan of tax wealth management.
This revenue growth was primarily driven by market improvement and a 13% sequential increase in transactional Commission revenue.
A P P revenue declined modestly sequentially.
Two of loss of assets stemming from post acquisition of attrition.
But of year over year basis total wealth management revenue was up 7%, which included revenue of $9 $3 million from the fantastic operating partners.
Wealth management segment operating income came in at $19 $4 million close to the high end of the target range.
By revenue performance and inline expense expectations.
Total client assets increased 39% year over year to $84 8 billion, which included approximately $5 billion from the addition of the day of tax planning partners.
Fee based advisory assets were up 56% year over year to $36 $8 billion with advisory assets as a percentage of total client assets ending the quarter at $43 four per se.
We saw net inflows into advisory assets of $369 million with total client assets, having net outflows of $869 million, which relates to a shift to the platform assets, which has increased the ROA for the business.
At the corporate level unallocated.
Unallocated corporate G&A expenses came in at $5 $7 million.
Typically better than the guidance range.
During the quarter, we had about a $1 million of acquisition and integration related costs.
Primarily associated with the East campus in one day with $6 3 million attributed to the Mark to market of the HK F S earn out provision.
We ended the quarter with cash and cash equivalents of $191 $8 million.
And net debt of $379 million.
Our reported net leverage ratio of at the end of the quarter was three five times compared to four three times at the end of 2020.
As we assess the priorities for capital allocation, we will focus on our own like accelerators, such as investments and acquisition opportunities.
And we will assess the use versus alternatives such as debt pay down or other opportunities.
We remain committed to having a long term net leverage ratio below three times.
With that let's turn to our second quarter and full year of 2021 the outlook.
For the second quarter.
<unk> Tec software segment revenue of between $82 five to $87 $5 million.
Segment income of 53 million to $58 million.
For our wealth management segment, including a P P.
We expect second quarter revenue of 155.5 to 161 play of $5 million.
Segment income of $17 five to $19 $5 million.
The consolidated basis for the second quarter again, including a P. P. We expect total blue core revenue of each.
For $238 million to $249 million.
Adjusted EBITDA of the totaled 63 and $75 million.
Non-GAAP net income of 47 to $55 $5 million or of 94 to $1 11 per share.
GAAP net income attributable to Blue corridor of 22.5 to $31 $5 million or <unk> 45 to 63 cents per share.
This outlook includes expected second quarter unallocated corporate level operating expenses of <unk>.
$7.5 million to $7 million.
For the full year, we expect tax software segment revenue of between $212, five and $218 million and segment income of 72 to $76 $5 million.
For our wealth management segment, we expect full year revenue, which includes a P. P of between 631.5 the.
$649 5 million and segment income of 79 to $83 $5 million.
This translates to consolidated full year outlook again, including a P. P of revenue of between 844 and $867 $5 million.
Adjusted EBITDA of 122.5 to $132 $5 million.
Non-GAAP net income of.
The $67.5 million to $80 million or $1.34 to $1 60 per diluted share.
The GAAP net loss attributable to blue Cora of $12.5 million to net income of $2 million or a net loss of 25 cents to net income of four cents per diluted share with $28 five to $27 $5 million in corporate.
Unallocated expense.
This concludes our prepared remarks, we will now turn the call over to the operator for Q&A.
For radio.
Thank you John.
For the question you will need to press Star then one on your telephone to lift John Your question. Please press the pound key.
Our first question comes from the line of Jackson Ader with Jpmorgan. Your line is now open.
Great. Good morning, guys. Thanks for taking my questions.
First one for me.
High level on the tax debt when you think about all of the the influx of stimulus filers from the year ago from of the 2019 taxes for the 2020 season.
Are they sticking around this year and in 2021.
Well so last year the.
Dynamic you just described ultimately did contribute to really really healthy market growth.
Hard to predict how much of that will stick around until we get through obviously when we get to the end of the season and right now you know what.
What we saw early in the season.
Was slowness in demand for the entire industry due to the the confusion about some of the.
Stimulus payments.
The unemployment payments, but ultimately we expect some of those units to to stick this year, but we won't really know until the end of the season.
Okay.
And there was the comment I think you made Chris on revenue per return.
Just to clarify are you, saying that you expect revenue per return to actually be up year over year, whereas the better than than you guys had expected entering the vaccine.
Better than we had expected coming into the tax season.
Okay, alright that makes sense.
Last one on taxes.
Okay, You mentioned March 12 days of that.
How do you how do you sit relative to where I think you would've expected debt with 12 days left regardless of when the the deadline.
Days versus the 12 days expectations any sales.
Yes.
But sort of Mark Douglas the out of debt.
Could you share.
Sure.
Well, what I'd say is we've reaffirmed our guidance on the revenue side, and obviously upped our guidance of bad from a profitability perspective, and so relative to our expectations. We feel good heading into the final 12 days.
The curves this year and how consumers have been filing has certainly been different than what we've seen of course, the last 20 years of our experience Nonetheless based on our assessment of the market.
We feel good with the amount of demand that's left and our expectations of what our share of will be.
Okay alright, thank you.
Yes.
Thank you. Our next question comes from the line of Dan kind of with the benchmark company.
Your line is open.
Thanks, Good morning, guys.
Maybe Chris I know you know, you're obviously trying to save some dry powder for the Investor day, but just the.
The initial thoughts on the hybrid assist the attach rates and to the extent that you are pushing it or looking to.
Expand the products feedback just anything that kind of gives us some help on how the initial rollout or expansion of its John.
Sure. So we will share more detailed metrics after we get through the end of the season I had an investor day I would say generally.
Really excited I'm, having officially launched the hybrid assisted in January of this year, our team put a ton of work into it over the last couple of seasons to be ready.
That said, it's the first year and there are a number of potential outcomes in terms of how it could play out and where we're happy with what we've seen so far and will share more specifics when we get the investor day.
And then again you know not true.
Trying to push the envelope, but just in terms of.
Getting users sort of following up on the first question getting users that tender of up funnel.
You talked a lot about NPS I think that's helpful and the retention rates how much education are you guys doing I know you raised your profitability a little bit on the tax side, which I think is comforting given sort of the massive and tax season, and who knows what pricing will do the Alaska.
Kind of rush here, but to the extent that you guys are out there pushing brand talking about the price can you talk talking about the delta in pricing, but then.
Even ex hybrid assist just trying to get people the sort of move up funnel just the education efforts there.
No.
Any kind of granularity you can give us around sort of what you guys are doing you know without the specific API to incentivize works you educate people to make that decision.
The drive ARPA of the higher.
Sure well so first when we talk about our true coming in a bit more favorably than we anticipated, but there's the that's driven by higher attach rates across.
A variety of the elements of our offering.
In terms of what we're doing to educate people about our value pricing and.
Offering elements like hybrid assisted.
It's both direct outreach to our customer.
Customers and former customers.
The email communication, we also have.
You know very clear communication at the beginning of the start of our product and then throughout the product about the different elements of our offering and then finally, we are using a multi channel marketing strategy and both value and the feature set or elements of our service offering are highlighted extensively through both.
Traditional media.
TV and radio as well as.
All elements of performance digital channel and based on where people sit as they move through the.
The process of completing their taxes, we communicated different things.
To appropriately high what's relevant for them.
Based on what they've they've done so far.
Got it that's helpful. And then maybe just last one for Mark.
I think there was some noise.
Especially kind of from.
From an expectation perspective of originally around the one Q wealth management.
Net income guide, which you then posted a little bit margin attrition of sequentially, but.
Nothing to write home about seeing that a lot better if the tissue.
It does seem the sort of have the same set up so I'm just wondering if you could give us maybe some of the puts and takes as we just think about wealth management segment income.
Sure.
Uh huh.
We shared we came in just shy of the high point of our guidance and coupon wait.
We've been making certain investments to ensure the experience for financial professionals.
As of what they deserve and so some of that hiring took place a little bit later in the first quarter.
Then we would of initially anticipated there are also certain one time expenses associated with the in person events things of that nature, and so from quarter to quarter, you'll have nonrecurring expense items as well as the timing associated with head count playing to win.
We made.
Deliver a certain profit number of versus another.
In one quarter versus another so the drivers really just has to do with one of the hiring takes place for what some of those one time expenses come into play, but when you think about the full year guidance of what you've provided.
We feel good about the.
Well, we'll come in relative to that range.
Did that.
Those of in person events, I guess pick up those vaccinations of increase.
And it's one of the things that we're really excited about we tend to see greater engagement with our financial professionals as you can imagine during those in person events and there's also a really great positive knock on effect in terms of their ability to engage with their customers.
Once they come together as a community and share of ideas of whats working across the landscape.
Got it perfect. Thanks for all of the color I appreciate it guys that's for.
Sure.
Thank you.
As a reminder to ask a question you would need the press Star then one on your telephone.
We do have a follow up question from the line of Jackson Ader with Jpmorgan. Your line is now open.
Thank you I'm back.
Just a couple of follow ups ended of the.
The proxy vote is over but you know I just.
With like the apps.
Any.
One of at all any additional kind of commentary you would have won on whether there will or won't be I'm kind of.
Engagement with with the like the continued active investors and.
Any kind of formal process, we saw that there was actually in the announcement.
For the wealth management business of bid for the wealth management business before the vote curious if you've heard of any other interest in other than the one that was made public.
Yeah. So we don't comment on speculation of what.
I would say is what we've shared publicly before which is our board and management team are focused on all different approaches to create value of maximize value for shareholders and sort.
We'll continue to evaluate all options in.
In terms of engagement with shareholders.
We will engage with all shareholders, who have interest in are deeply value of the perspective.
And so we'll continue our past practice of doing so.
Okay.
And then just speaking of the board.
So the announcement this morning.
Of the appointment of Peanuts Aerie.
I'm curious just what kind of.
What expertise, we will be able to bring to either of the tax of the wealth business or both.
Yeah, So Tina joined the board.
Months ago, and we're thrilled to have team that John and she has extensive experience in transforming the organization from a performance perspective and culturally and so.
We have put together of multiple businesses over the years, it's important that we drive cultural alignment within the company. She also has extensive experience in media and as you know one of our largest.
The line items in terms of cost is actually spending on media to support the <unk> business and so we're thrilled to have for both general management experience, but also for leadership experience and cultural transformation of performance transformation and deep understanding of the media landscape.
Okay, Alright, thank you very much.
Thank you.
There are no further questions I will now turn the call back to transfer all of this for closing remarks.
Great. Thank you all for joining us today and for your interest in Blue corridor will speak to the next quarter.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.