UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
       
FORM 10-Q

☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SeptemberJune 30, 20192020
orOR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                         to                     
Commission File Number: 000-25131
bcor-20200630_g1.jpg
BLUCORA, INC.Blucora, Inc.
(Exact name of registrant as specified in its charter)

Delaware91-1718107
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
6333 N. State Hwy 161, 4th Floor, Irving, Texas75038
(Address of principal executive offices)(Zip Code)
3200 Olympus Blvd, Suite 100, Dallas, Texas 75019
(Address of principal executive offices) (Zip Code)
(972) 870-6400
(Registrant’s telephone number, including area code: (972) 870-6400code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.0001 per shareBCORNASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. ý Yes o No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  ý Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large“large accelerated filer," "accelerated” “accelerated filer," "smaller” “smaller reporting company,"” and "emerging“emerging growth company"company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerýAccelerated filer☐
Non-accelerated filer☐Smaller reporting company☐
Emerging growth company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section13(a)Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ý No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Outstanding at
ClassOctober 30, 2019
Common Stock, Par Value $0.000148,943,206 


As of July 31, 2020, 48,037,939 shares of the registrant’s Common Stock were outstanding.


TABLE OF CONTENTS
Page
Item 1.
45
45
56
67
8
9
Item 2.
2021
Item 3.
3743
Item 4.
3743
Item 1.
3743
Item 1A.
3744
Item 2.
4346
Item 3.
4347
Item 4.
4347
Item 5.
4347
Item 6.
4448
4549
Trademarks, Trade Names and Service Marks
This report includes certainsome of the trademarks, trade names, and service marks of Blucora, Inc.(referred (referred to throughout this report as"Blucora “Blucora,”," the "“Company,," "we," "us," or” "our"“we,”“us,” or “our”), including Blucora, Avantax, Avantax Wealth Management, HD Vest, 1st Global, HKFS, TaxAct, Tax-Smart Investing, Capital Gains Analyzer, Tax-Loss Harvester, and TaxAct.Social Security Planner. Each one of these trademarks, trade names, or service marks is either (i) our registered trademark, (ii) a trademark for which we have a pending application, (iii) a trade name or service mark for which we claim common law rights, or (iv) a registered trademark or application for registration whichthat we have been authorized by a third party to use.
Solely for convenience, the trademarks, service marks, and trade names included in this report are without the ®, ™, SM™ or other applicable symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensors to these trademarks, service marks, and trade names. This report may also include additional trademarks, service marks, and trade names of others, which are the property of their respective owners. All trademarks, service marks, and trade names included in this report are, to our knowledge, the property of their respective owners.
References to our or our subsidiaries’ website addresses or the website addresses of third parties in this report do not constitute incorporation by reference of the information contained on such websites and should not be considered part of this document.


Blucora, Inc. | Q2 2020 Form 10-Q 2

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This reportQuarterly Report on Form 10-Q (“Form 10-Q”) contains forward-looking statements that involve risks and uncertainties. The statements in this report that are not purely historical are forward-looking statements within the meaning of Section 21Ethe Private Securities Litigation Reform Act of 1995, that involve risks and uncertainties. Many of the Securities Exchange Actforward-looking statements are located in Part I, Item 2 of 1934,this Form 10-Q under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact. Forward-looking statements can also be identified by words such as amended. Words such as“anticipate,“anticipates,” “believe,“believes,” “plan,“plans,” “expect,“expects,” “future,“future,” “intend,“intends,” “may,“may,” “will,“will,” “should,“would,” “estimate,“could,” “predict,“should,” “potential,“estimates,” “continue,“predicts,” “potential,” “continues,” “target,” “outlook,” and "could" or, in each case, their negative variablessimilar terms and similar expressions, identify forward-looking statements, but the absence of these words does not mean that the statement is not forward-looking. These forward-looking statements include, but are not limited to, statements regarding:
•the impact of the coronavirus pandemic on our results of operations and our business, including the impact of the resulting economic and market disruption, the extension of tax filing deadlines, and other related relief;
•our ability to effectively compete within our industry;
•our ability to attract and retain financial professionals, qualified employees, clients and customers, as well as our ability to provide strong customercustomer/client service;
•our ability to close, finance, and realize all of the anticipated benefits of the acquisition of 1st Global,acquisitions, as well as our ability to integrate the operations of 1st Global;recently acquired businesses;
•our future capital requirements and the availability of financing, if necessary;
•our ability to meet our current and future debt service obligations, including our ability to maintain compliance with our debt covenants;
•our ability to generate strong investment performance for our customersclients and the impact of the financial markets on our customers’clients’ portfolios;
•the impact of new or changing legislation and regulations (or interpretations thereof) on our business, including our ability to successfully address and comply with such legislation and regulations (or interpretations thereof) and increased costs, reductions of revenue, and potential fines, penalties, or disgorgement to which we may be subject as a result thereof;
•risks, burdens, and costs, including fines, penalties, or disgorgement, associated with our business being subjected to regulatory inquiries, investigations, or initiatives, including those of the Financial Industry Regulatory Authority and the Securities and Exchange Commission;
•risks associated with legal proceedings, including litigation and regulatory proceedings;
•our ability to manage leadership and employee transitions, including costs and time burdens on management and our board of directors related thereto;
•political and economic conditions and events that directly or indirectly impact the wealth management and tax preparation industries;
•our ability to attract and retain productive financial advisors;
•our ability to respond to rapid technological changes, including our ability to successfully release new products and services or improve upon existing products and services;
•our expectations concerning the revenues we generate from fees associated with the financial products that we distribute;
•our ability to manage leadership and employee transitions;
•risks related to goodwill and other intangible asset impairment;
•our ability to comply with regulations (or interpretations thereof) applicable to the wealth managementdevelop, establish, and tax preparation industries, including increased costs associated with or reductions in revenue resulting from new or changing regulations or interpretations of existing regulations;
•risks associated with our business being subjected to enhanced regulatory scrutiny;
•our expectations concerning the benefits that may be derived from our clearing platform and our investment advisory platform;maintain strong brands;
•risks associated with the use and implementation of information technology and the effect of security breaches, computer viruses, and computer hacking attacks;
•our ability to comply with laws and regulations regarding privacy and protection of user data;
•our ability to maintain our relationships with third partythird-party partners, providers, suppliers, vendors, distributors, contractors, financial institutions, industry associations, and licensing partners;partners, and our expectations regarding and reliance on the products, tools, platforms, systems, and services provided by these third parties;
Blucora, Inc. | Q2 2020 Form 10-Q 3

•our beliefs and expectations regarding the seasonality of our business;
•risks associated with litigation;
•our ability to attract and retain qualified employees;
•our assessments and estimates that determine our effective tax rate;
•the impact of new or changing tax legislation on our business and our ability to attract and retain customers;
•our ability to develop, establish and maintain strong brands;
•our ability to protect our intellectual property and the impact of any claim that we have infringed on the intellectual property rights of others; and
•our ability to effectively integrate companies or assets that we acquire.others.
Forward-looking statements are not guarantees of future performance and are subject to known and unknown risks, uncertainties, and other factors many of which are beyond our control, that may cause our results, levels of activity, performance, achievements, and prospects to be materially different from those expressed or implied by such forward-looking statements. These risks, uncertainties, and other factors include, among others, the risk factors set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018,2019, as supplemented by those identified under Part II, Item 1A, "Risk Factors"“Risk Factors” and elsewhere in this report,Form 10-Q, as well as in the Company'sour other filings with the Securities and Exchange Commission. You should not rely onSEC. All forward-looking statements which speak only as of the date of this Quarterly Report on Form 10-Q. We do not


undertake any obligation and do not intend to update or revise any forward-looking statement to reflect new information, events, or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect the occurrence of unanticipated events, except as required by law.





Blucora, Inc. | Q2 2020 Form 10-Q 4


PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
BLUCORA, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
September 30,
2019		December 31,
2018		June 30,
2020		December 31,
2019
ASSETSASSETSASSETS
Current assets:Current assets:Current assets:
Cash and cash equivalentsCash and cash equivalents$97,466  $84,524  Cash and cash equivalents$90,081  $80,820  
Cash segregated under federal or other regulationsCash segregated under federal or other regulations1,284  842  Cash segregated under federal or other regulations1,266  5,630  
Accounts receivable, net of allowanceAccounts receivable, net of allowance16,803  15,721  Accounts receivable, net of allowance15,913  16,266  
Commissions receivableCommissions receivable20,724  15,562  Commissions receivable15,590  21,176  
Other receivablesOther receivables7,424  7,408  Other receivables5,711  2,902  
Prepaid expenses and other current assets, netPrepaid expenses and other current assets, net9,058  7,755  Prepaid expenses and other current assets, net10,237  12,349  
Total current assetsTotal current assets152,759  131,812  Total current assets138,798  139,143  
Long-term assets:Long-term assets:Long-term assets:
Property and equipment, netProperty and equipment, net17,230  12,389  Property and equipment, net43,793  18,706  
Right-of-use assets, netRight-of-use assets, net10,199  —  Right-of-use assets, net27,653  10,151  
Goodwill, netGoodwill, net663,005  548,685  Goodwill, net391,084  662,375  
Other intangible assets, netOther intangible assets, net301,533  294,603  Other intangible assets, net275,790  290,211  
Deferred tax asset, netDeferred tax asset, net1,613  9,997  
Other long-term assetsOther long-term assets9,902  10,236  Other long-term assets3,749  6,989  
Total long-term assetsTotal long-term assets1,001,869  865,913  Total long-term assets743,682  998,429  
Total assetsTotal assets$1,154,628  $997,725  Total assets$882,480  $1,137,572  
LIABILITIES AND STOCKHOLDERS’ EQUITYLIABILITIES AND STOCKHOLDERS’ EQUITYLIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:Current liabilities:Current liabilities:
Accounts payableAccounts payable$12,139  $3,798  Accounts payable$13,689  $10,969  
Commissions and advisory fees payableCommissions and advisory fees payable18,871  15,199  Commissions and advisory fees payable14,695  19,905  
Accrued expenses and other current liabilitiesAccrued expenses and other current liabilities39,261  18,980  Accrued expenses and other current liabilities35,114  36,144  
Lease liabilities4,163  46  
Deferred revenue7,456  10,257  
Deferred revenue—currentDeferred revenue—current4,178  12,014  
Lease liabilities—currentLease liabilities—current1,251  3,272  
Current portion of long-term debt, netCurrent portion of long-term debt, net1,227  —  Current portion of long-term debt, net1,230  11,228  
Total current liabilitiesTotal current liabilities83,117  48,280  Total current liabilities70,157  93,532  
Long-term liabilities:Long-term liabilities:Long-term liabilities:
Long-term debt, netLong-term debt, net381,598  260,390  Long-term debt, net381,561  381,485  
Deferred tax liability, net35,225  40,394  
Deferred revenue7,403  8,581  
Lease liabilities6,055  100  
Deferred revenue—long-termDeferred revenue—long-term6,709  7,172  
Lease liabilities—long-termLease liabilities—long-term36,407  5,916  
Other long-term liabilitiesOther long-term liabilities6,384  7,440  Other long-term liabilities6,785  5,952  
Total long-term liabilitiesTotal long-term liabilities436,665  316,905  Total long-term liabilities431,462  400,525  
Total liabilitiesTotal liabilities519,782  365,185  Total liabilities501,619  494,057  
Redeemable noncontrolling interests—  24,945  
Commitments and contingencies (Note 8)
Commitments and contingencies (Note 10)Commitments and contingencies (Note 10)
Stockholders’ equity:Stockholders’ equity:Stockholders’ equity:
Common stock, par $0.0001—900,000 authorized shares; 48,895 shares issued and 48,334 shares outstanding at September 30, 2019; 48,044 shares issued and outstanding at December 31, 20185  5  
Common stock, par value $0.0001 per share—900,000 authorized shares; 49,340 shares issued and 48,034 shares outstanding at June 30, 2020; 49,059 shares issued and 47,753 shares outstanding at December 31, 2019Common stock, par value $0.0001 per share—900,000 authorized shares; 49,340 shares issued and 48,034 shares outstanding at June 30, 2020; 49,059 shares issued and 47,753 shares outstanding at December 31, 20195  5  
Additional paid-in capitalAdditional paid-in capital1,580,336  1,569,725  Additional paid-in capital1,589,895  1,586,972  
Accumulated deficitAccumulated deficit(932,505) (961,689) Accumulated deficit(1,180,640) (914,791) 
Accumulated other comprehensive loss Accumulated other comprehensive loss  (272) (446) Accumulated other comprehensive loss—  (272) 
Treasury stock, at cost—561 shares at September 30, 2019(12,718) —  
Treasury stock, at cost—1,306 shares at June 30, 2020 and December 31, 2019Treasury stock, at cost—1,306 shares at June 30, 2020 and December 31, 2019(28,399) (28,399) 
Total stockholders’ equityTotal stockholders’ equity634,846  607,595  Total stockholders’ equity380,861  643,515  
Total liabilities and stockholders’ equityTotal liabilities and stockholders’ equity$1,154,628  $997,725  Total liabilities and stockholders’ equity$882,480  $1,137,572  

See accompanying notes to Unaudited Condensed Consolidated Financial Statements.
unaudited condensed consolidated financial statements.
4Blucora, Inc. | Q2 2020 Form 10-Q 5

BLUCORA, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands, except per share data)
 Three months ended September 30,Nine months ended September 30,
 2019201820192018
Revenue:
Wealth management services revenue$145,428  $91,887  $362,791  $275,984  
Tax preparation services revenue3,588  3,498  205,733  183,214  
Total revenue149,016  95,385  568,524  459,198  
Operating expenses:
Cost of revenue:
Wealth management services cost of revenue102,030  62,313  250,881  187,526  
Tax preparation services cost of revenue1,633  1,370  8,983  8,182  
Amortization of acquired technology—  —  —  99  
Total cost of revenue103,663  63,683  259,864  195,807  
Engineering and technology8,635  4,246  22,323  14,225  
Sales and marketing19,976  15,675  104,804  94,719  
General and administrative19,642  13,404  55,721  43,895  
Acquisition and integration6,759  —  17,739  —  
Depreciation1,470  798  3,846  3,706  
Amortization of other acquired intangible assets10,082  8,271  27,295  25,384  
Impairment of intangible asset50,900  —  50,900  —  
Restructuring—  —  —  291  
Total operating expenses221,127  106,077  542,492  378,027  
Operating income (loss) (72,111) (10,692) 26,032  81,171  
Other loss, net  (2,606) (3,863) (11,682) (11,850) 
Income (loss) before income taxes (74,717) (14,555) 14,350  69,321  
Income tax benefit (expense) 12,331  818  16,470  (2,052) 
Net income (loss) (62,386) (13,737) 30,820  67,269  
Net income attributable to noncontrolling interests  —  (227) —  (654) 
Net income (loss) attributable to Blucora, Inc. $(62,386) $(13,964) $30,820  $66,615  
Net income (loss) per share attributable to Blucora, Inc.: 
Basic$(1.28) $(0.37) $0.64  $1.34  
Diluted$(1.28) $(0.37) $0.62  $1.28  
Weighted average shares outstanding:  
Basic48,652  47,712  48,456  47,191  
Diluted48,652  47,712  49,596  49,292  
Other comprehensive income (loss): 
Net income (loss)$(62,386) $(13,737) $30,820  $67,269  
Foreign currency translation adjustment(64) 102  174  (147) 
Other comprehensive income (loss)(64) 102  174  (147) 
Comprehensive income (loss) (62,450) (13,635) 30,994  67,122  
Comprehensive income (loss) attributable to noncontrolling interests —  (227) —  (654) 
Comprehensive income (loss) attributable to Blucora, Inc. $(62,450) $(13,862) $30,994  $66,468  

 Three months ended June 30,Six months ended June 30,
 2020201920202019
Revenue:
Wealth management services revenue$115,884  $127,831  $260,873  $217,363  
Tax preparation services revenue45,238  65,909  163,569  202,145  
Total revenue161,122  193,740  424,442  419,508  
Operating expenses:
Cost of revenue:
Wealth management services cost of revenue83,868  87,477  186,210  148,851  
Tax preparation services cost of revenue3,054  3,149  7,067  7,350  
Total cost of revenue86,922  90,626  193,277  156,201  
Engineering and technology7,377  7,159  15,892  13,688  
Sales and marketing40,057  29,256  119,767  84,828  
General and administrative20,200  19,002  44,928  36,079  
Acquisition and integration2,824  9,183  8,506  10,980  
Depreciation1,675  1,315  3,471  2,376  
Amortization of other acquired intangible assets6,673  9,169  14,421  17,213  
Impairment of goodwill—  —  270,625  —  
Total operating expenses165,728  165,710  670,887  321,365  
Operating income (loss)(4,606) 28,030  (246,445) 98,143  
Other loss, net(5,288) (5,118) (11,423) (9,076) 
Income (loss) before income taxes(9,894) 22,912  (257,868) 89,067  
Income tax benefit (expense)59,539  8,124  (7,981) 4,139  
Net income (loss) attributable to Blucora, Inc.$49,645  $31,036  $(265,849) $93,206  
Net income (loss) per share attributable to Blucora, Inc.:
Basic$1.04  $0.64  $(5.55) $1.93  
Diluted$1.03  $0.62  $(5.55) $1.88  
Weighted average shares outstanding:
Basic47,941  48,555  47,884  48,358  
Diluted48,092  49,822  47,884  49,681  
Comprehensive income (loss):
Net income (loss)$49,645  $31,036  $(265,849) $93,206  
Other comprehensive income—  131  272  238  
Comprehensive income (loss) attributable to Blucora, Inc.$49,645  $31,167  $(265,577) $93,444  













See accompanying notes to Unaudited Condensed Consolidated Financial Statements.
unaudited condensed consolidated financial statements.
5Blucora, Inc. | Q2 2020 Form 10-Q 6

BLUCORA, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except per share data)thousands)
Redeemable Noncontrolling InterestsAdditional paid-in capitalAccumulated deficitAccumulated other comprehensive loss
Common stockTreasury stock
SharesAmountSharesAmountTotal
Balance as of December 31, 2019$—  49,059  $5  $1,586,972  $(914,791) $(272) (1,306) $(28,399) $643,515  
Common stock issued for stock options and restricted stock units—  89  —  —  —  —  —  —  —  
Stock-based compensation—  —  —  (1,201) —  —  —  —  (1,201) 
Tax payments from shares withheld for equity awards—  —  —  (917) —  —  —  —  (917) 
Cumulative translation adjustment—  —  —  —  —  272  —  —  272  
Net loss—  —  —  —  (315,494) —  —  —  (315,494) 
Balance as of March 31, 2020$—  49,148  $5  $1,584,854  $(1,230,285) $—  (1,306) $(28,399) $326,175  
Common stock issued for stock options, restricted stock units, and employee stock purchase plan—  192  —  1,226  —  —  —  —  1,226  
Stock-based compensation—  —  —  3,904  —  —  —  —  3,904  
Tax payments from shares withheld for equity awards—  —  —  (89) —  —  —  —  (89) 
Net income—  —  —  —  49,645  —  —  —  49,645  
Balance as of June 30, 2020$—  49,340  $5  $1,589,895  $(1,180,640) $—  (1,306) $(28,399) $380,861  
Redeemable Noncontrolling InterestsCommon stockAdditional paid-in capitalAccumulated deficitAccumulated other comprehensive lossTreasury stock
SharesAmountSharesAmountTotal
Balance as of December 31, 2018$24,945  48,044  $5  $1,569,725  $(961,689) $(446) —  $—  $607,595  
Common stock issued for stock options and restricted stock units—  211  —  283  —  —  —  —  283  
Stock-based compensation—  —  —  2,443  —  —  —  —  2,443  
Tax payments from shares withheld for equity awards—  —  —  (2,425) —  —  —  —  (2,425) 
Reclassification of mandatorily redeemable noncontrolling interests(22,428) —  —  —  —  —  —  —  —  
Impact of adoption of new leases accounting standard—  —  —  —  (1,636) —  —  —  (1,636) 
Cumulative translation adjustment—  —  —  —  —  107  —  —  107  
Net income—  —  —  —  62,170  —  —  —  62,170  
Balance as of March 31, 2019$2,517  48,255  $5  $1,570,026  $(901,155) $(339) —  $—  $668,537  
Common stock issued for stock options, restricted stock units, and employee stock purchase plan—  524  —  4,181  —  —  —  —  4,181  
Stock-based compensation—  —  —  4,082  —  —  —  —  4,082  
Tax payments from shares withheld for equity awards—  —  —  (2,735) —  —  —  —  (2,735) 
Redemption of noncontrolling interests(2,517) —  —  —  —  —  —  —  —  
Cumulative translation adjustment—  —  —  —  —  131  —  —  131  
Net income—  —  —  —  31,036  —  —  —  31,036  
Balance as of June 30, 2019$—  48,779  $5  $1,575,554  $(870,119) $(208) —  $—  $705,232  


Redeemable Noncontrolling InterestsAdditional- paid-in capitalAccumulated deficitAccumulated other comprehensive loss
Common stockTreasury stock
SharesAmountSharesAmountTotal
Balance as of December 31, 2018  $24,945  48,044  $5  $1,569,725  $(961,689) $(446) —  $—  $607,595  
Common stock issued for stock options and restricted stock units—  211  —  283  —  —  —  —  283  
Other comprehensive income—  —  —  —  —  107  —  —  107  
Stock-based compensation—  —  —  2,443  —  —  —  —  2,443  
Tax payments from shares withheld for equity awards—  —  —  (2,425) —  —  —  —  (2,425) 
Reclassification of mandatorily redeemable noncontrolling interests(22,428) —  —  —  —  —  —  —  —  
Impact of adoption of new leases accounting standard—  —  —  —  (1,636) —  —  —  (1,636) 
Net income—  —  —  —  62,170  —  —  —  62,170  
Balance as of March 31, 2019$2,517  48,255  $5  $1,570,026  $(901,155) $(339) —  $—  $668,537  
Common stock issued for stock options, restricted stock units and employee stock purchase plan—  524  —  4,181  —  —  —  —  4,181  
Other comprehensive income—  —  —  —  —  131  —  —  131  
Stock-based compensation—  —  —  4,082  —  —  —  —  4,082  
Tax payments from shares withheld for equity awards—  —  —  (2,735) —  —  —  —  (2,735) 
Redemption of noncontrolling interests(2,517) —  —  —  —  —  —  —  —  
Net income—  —  —  —  31,036  —  —  —  31,036  
Balance as of June 30, 2019$—  48,779  $5  $1,575,554  $(870,119) $(208) —  $—  $705,232  
Common stock issued for stock options and restricted stock units—  116  —  491  —  —  —  —  491  
Other comprehensive loss—  —  —  —  —  (64) —  —  (64) 
Stock-based compensation—  —  —  4,639  —  —  —  —  4,639  
Tax payments from shares withheld for equity awards—  —  —  (348) —  —  —  —  (348) 
Stock repurchases—  —  —  —  —  —  (561) (12,718) (12,718) 
Net loss—  —  —  —  (62,386) —  —  —  (62,386) 
Balance as of September 30, 2019$—  48,895  $5  $1,580,336  $(932,505) $(272) (561) $(12,718) $634,846  

6


Redeemable Noncontrolling InterestsCommon stockAdditional-paid-in capitalAccumulated deficitAccumulated other comprehensive loss
SharesAmountTotal
Balance as of December 31, 2017  $18,033  46,366  $5  $1,555,560  $(1,014,174) $(4) $541,387  
Common stock issued for stock options, restricted stock units and employee stock purchase plan—  462  —  3,237  —  —  3,237  
Other comprehensive loss—  —  —  —  —  (137) (137) 
Stock-based compensation—  —  —  2,958  —  —  2,958  
Tax payments from shares withheld for equity awards—  —  —  (1,493) —  —  (1,493) 
Impact of adoption of new revenue recognition accounting standard—  —  —  —  1,851  —  1,851  
Net income205  —  —  —  45,341  —  45,341  
Balance as of March 31, 2018$18,238  46,828  $5  $1,560,262  $(966,982) $(141) $593,144  
Common stock issued for stock options and restricted stock units—  665  —  7853  —  —  7,853  
Other comprehensive loss—  —  —  —  —  (112) (112) 
Stock-based compensation—  —  —  4,033  —  —  4,033  
Tax payments from shares withheld for equity awards—  —  —  (2,736) —  —  (2,736) 
Net income222  —  —  —  35,238  —  35,238  
Balance as of June 30, 2018$18,460  47,493  $5  $1,569,412  $(931,744) $(253) 637,420  
Common stock issued for stock options, restricted stock units and employee stock purchase plan—  323  —  2,850  —  —  2,850  
Other comprehensive income—  —  —  —  —  102  102  
Stock-based compensation—  —  —  2,568  —  —  2,568  
Tax payments from shares withheld for equity awards—  —  —  (1,754) —  —  (1,754) 
Net income (loss)227  —  —  —  (13,964) —  (13,964) 
Adjustment of redeemable noncontrolling interests to redemption value3,537  —  —  (3,537) —  —  (3,537) 
Balance as of September 30, 2018$22,224  47,816  $5  $1,569,539  $(945,708) $(151) $623,685  





See accompanying notes to Unaudited Condensed Consolidated Financial Statements.
unaudited condensed consolidated financial statements.
Blucora, Inc. | Q2 2020 Form 10-Q 7

BLUCORA, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Nine months ended September 30, Six months ended June 30,
20192018 20202019
Operating Activities:
Net income  $30,820  $67,269  
Adjustments to reconcile net income to net cash from operating activities:  
Operating activities:Operating activities:
Net income (loss)Net income (loss)$(265,849) $93,206  
Adjustments to reconcile net income (loss) to net cash from operating activities:Adjustments to reconcile net income (loss) to net cash from operating activities:
Stock-based compensationStock-based compensation11,164  9,559  Stock-based compensation2,703  6,525  
Depreciation and amortization of acquired intangible assetsDepreciation and amortization of acquired intangible assets32,078  29,539  Depreciation and amortization of acquired intangible assets19,253  20,185  
Impairment of intangible asset50,900  —  
Impairment of goodwillImpairment of goodwill270,625  —  
Reduction of right-of-use lease assets Reduction of right-of-use lease assets  3,117  —  Reduction of right-of-use lease assets3,196  1,977  
Deferred income taxesDeferred income taxes(23,343) (1,073) Deferred income taxes8,784  4,446  
Amortization of premium on investments, net, and debt issuance costs  848  659  
Amortization of debt issuance costsAmortization of debt issuance costs644  547  
Accretion of debt discountsAccretion of debt discounts189  125  Accretion of debt discounts138  123  
Loss on debt extinguishment  —  1,534  
Gain on sale of a business(3,256) —  
OtherOther508  —  Other1,571  260  
Cash provided (used) by changes in operating assets and liabilities:Cash provided (used) by changes in operating assets and liabilities:Cash provided (used) by changes in operating assets and liabilities:
Accounts receivableAccounts receivable352  4,636  Accounts receivable184  (3,217) 
Commissions receivableCommissions receivable(19) 60  Commissions receivable5,586  847  
Other receivablesOther receivables(18) 3,149  Other receivables(2,809) (661) 
Prepaid expenses and other current assetsPrepaid expenses and other current assets13,828  1,369  Prepaid expenses and other current assets1,435  12,258  
Other long-term assetsOther long-term assets497  (902) Other long-term assets3,162  (355) 
Accounts payableAccounts payable(2,346) (2,255) Accounts payable2,942  (2,995) 
Commissions and advisory fees payableCommissions and advisory fees payable(602) (2,627) Commissions and advisory fees payable(5,210) (663) 
Lease liabilitiesLease liabilities(3,371) —  Lease liabilities(2,572) (2,066) 
Deferred revenueDeferred revenue(21,694) (2,411) Deferred revenue(8,299) (24,760) 
Accrued expenses and other current and long-term liabilitiesAccrued expenses and other current and long-term liabilities6,595  (3,048) Accrued expenses and other current and long-term liabilities(1,110) (8,845) 
Net cash provided by operating activities Net cash provided by operating activities  96,247  105,583  Net cash provided by operating activities34,374  96,812  
Investing Activities:
Investing activities:Investing activities:
Business acquisition, net of cash acquiredBusiness acquisition, net of cash acquired(166,561) —  Business acquisition, net of cash acquired—  (164,461) 
Purchases of property and equipmentPurchases of property and equipment(6,887) (5,340) Purchases of property and equipment(19,072) (2,938) 
Proceeds from sale of a business, net of cash7,467  —  
Net cash used by investing activities Net cash used by investing activities  (165,981) (5,340) Net cash used by investing activities(19,072) (167,399) 
Financing Activities:
Financing activities:Financing activities:
Proceeds from credit facilities Proceeds from credit facilities  121,489  —  Proceeds from credit facilities55,000  121,499  
Payments on credit facilitiesPayments on credit facilities—  (80,000) Payments on credit facilities(65,625) —  
Stock repurchases(11,968) —  
Payment of redeemable noncontrolling interestsPayment of redeemable noncontrolling interests(24,945) —  Payment of redeemable noncontrolling interests—  (24,945) 
Proceeds from stock option exercisesProceeds from stock option exercises3,811  11,738  Proceeds from stock option exercises25  3,320  
Proceeds from issuance of stock through employee stock purchase planProceeds from issuance of stock through employee stock purchase plan1,144  1,608  Proceeds from issuance of stock through employee stock purchase plan1,201  1,144  
Tax payments from shares withheld for equity awardsTax payments from shares withheld for equity awards(5,508) (5,983) Tax payments from shares withheld for equity awards(1,006) (5,160) 
Contingent consideration payments for business acquisitionContingent consideration payments for business acquisition(943) (1,315) Contingent consideration payments for business acquisition—  (943) 
Net cash provided (used) by financing activitiesNet cash provided (used) by financing activities 83,080  (73,952) Net cash provided (used) by financing activities(10,405) 94,915  
Effect of exchange rate changes on cash, cash equivalents, and restricted cash Effect of exchange rate changes on cash, cash equivalents, and restricted cash  38  (11) Effect of exchange rate changes on cash, cash equivalents, and restricted cash—  58  
Net increase in cash, cash equivalents, and restricted cash Net increase in cash, cash equivalents, and restricted cash  13,384  26,280  Net increase in cash, cash equivalents, and restricted cash4,897  24,386  
Cash, cash equivalents, and restricted cash, beginning of periodCash, cash equivalents, and restricted cash, beginning of period85,366  62,311  Cash, cash equivalents, and restricted cash, beginning of period86,450  85,366  
Cash, cash equivalents, and restricted cash, end of periodCash, cash equivalents, and restricted cash, end of period$98,750  $88,591  Cash, cash equivalents, and restricted cash, end of period$91,347  $109,752  
Supplemental cash flow information:Supplemental cash flow information:Supplemental cash flow information:
Accrued stock repurchases$750  $—  
Cash paid for income taxesCash paid for income taxes$3,154  $1,096  Cash paid for income taxes$1,189  $2,566  
Cash paid for interestCash paid for interest$13,901  $11,573  Cash paid for interest$9,702  $6,671  
Non-cash investing activities:Non-cash investing activities:
Purchases of property and equipment through leasehold incentives (investing)Purchases of property and equipment through leasehold incentives (investing)$9,726  $—  





See accompanying notes to Unaudited Condensed Consolidated Financial Statements.
unaudited condensed consolidated financial statements.
Blucora, Inc. | Q2 2020 Form 10-Q 8

BLUCORA, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Description of the Business
Description of the business:Blucora, Inc. (the "“Company,,"” "“Blucora,," "we," "our," or” “we,” “our,” "us"or “us”) operates 2 primary businesses: athe Wealth Management business and athe digital Tax Preparation business.
Wealth Management
The Wealth Management business consists of the operations of Avantax Wealth Management (which is comprised of what was formerly HD Vest and 1st Global, both as discussed further below() (the “Avantax,”" the “Wealth Management business" business,”or the "Wealth“Wealth Management segment”). Avantax Wealth Management, which provides tax-focused wealth management solutions for financial advisors,professionals, tax preparers, certified public accounting firms, and their clients. Specifically,Avantax offers its services through its registered broker-dealer, registered investment advisor (“RIA”), and insurance agency subsidiaries and is the Wealth Management business:
•largest U.S. tax-focused independent broker-dealer. Avantax works with a nationwide network of financial professionals that operate as independent contractors, and Avantax provides these financial professionals with an integrated platform of technology,technical, practice, and product support including brokerage, investment advisory and insurance services,tools to assist in making each financial advisorprofessional a comprehensive financial service center for his/his or her clients and/or clients of their respective firms;
•helps taxclients. Avantax formerly operated under the HD Vest and accounting professionals and firms integrate financial advisory services into their practices;
•recruits independent tax professionals with, or within, established tax practices and offers specialized training and support, which allows them1st Global brands prior to provide their respective clients comprehensive wealth management and tax solutions; and
•generates revenue primarily through commissions, quarterly investment advisory fees based on total client assets and other fees.
On May 6, 2019, the Company closed the acquisition of allrebranding of the issued and outstanding common stock of 1st Global, a tax-focused wealth management company, for a cash purchase price of $180.0 million (the "Acquisition"). The purchase price was paid with a combination of (i) cash on hand and (ii) the proceeds from a $125.0 million increase in the term loan under the Company's credit agreement. See further discussion of the term loan increase in "Note 6: Debt."
The operations of 1st Global are included in the Company's operating results as part of the Wealth Management segment from the date of the Acquistion. See further discussion in "Note 3: Business Combinations."
On September 9, 2019, the Company announced a rebranding of its Wealth Management business to Avantax Wealth Management (the in 2019.
On July 1, 2020, we acquired Honkamp Krueger Financial Services, Inc. ("Rebranding"“HKFS,” and such acquisition, the “HKFS Acquisition”). In connectionHKFS operates as a captive, or employee-based, RIA and wealth management business that partners with CPA firms in order to provide their consumer and small business clients with holistic planning and financial advisory services. As the Rebranding, HD Vest (which comprised allHKFS Acquisition closed on July 1, 2020, the financial results of the Wealth Management business prior to the Acquisition) was renamed Avantax Wealth ManagementHKFS were not included in mid-September 2019,our condensed consolidated financial statements as of and 1st Global converted in late October 2019.In connection with the Rebranding, the Company recorded an impairment charge related to the HD Vest trade name intangible asset of approximately $50.9 million for the three and ninesix months ended SeptemberJune 30, 2019. The impairment charge is reflected on the consolidated statements of comprehensive income (loss). See further discussion in "Note 12: Intangible Asset Impairment."2020. For more information, see “Note 14—Subsequent Events.”
Tax Preparation
The Tax Preparation business consists of the operations of TaxAct, Inc. (“TaxAct,” the “Tax Preparation business,” or the “Tax Preparation segment”) and provides digital tax preparation solutions for consumers, small business owners, and tax professionals through its website www.TaxAct.com (collectively referred to as the www.TaxAct.com.
"The Tax Preparation business" orsegment is highly seasonal, with a significant portion of its annual revenue typically earned in the "first four months of the fiscal year. During the third and fourth quarters, the Tax Preparation segment"segment typically reports losses because revenue from the segment is minimal while core operating expenses continue. In March 2020 and as a result of the coronavirus pandemic, the Internal Revenue Service (“IRS”). extended the filing deadline for federal tax returns from April 15, 2020 to July 15, 2020. This filing extension resulted in the shifting of a significant portion of Tax Preparation segment revenue that is usually earned in the first and second quarters of 2020 to the third quarter of 2020. In addition, sales and marketing expenses were elevated in the first and second quarters of 2020.
Segments:The Company hasSegments
We have 2 reportable segments: (1) the Wealth Management segment and (2) the Tax Preparation segment.
Reclassification: The Company reclassified approximately $0.7 million from long-term assets to current assets related to loans given to several HD Vest advisors on its December 31, 2018 consolidated balance sheet.
Note 2: Summary of Significant Accounting Policies
Interim financial information:information
The accompanying condensed consolidated financial statements have been prepared by the Companyus under the rules and regulations of the Securities and Exchange Commission (the "SEC"“SEC”) for interim financial reporting. These condensed consolidated financial statements are unaudited and, in management’s opinion, include all adjustments, consisting of normal recurring adjustments and accruals, necessary for a fair presentation of the consolidated financial position, results of operations, and cash flows for the periods presented. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States ("GAAP"“GAAP”) have been omitted in accordance with the rules and regulations of the SEC. These unaudited condensed consolidated financial statements should be read in conjunction with the audited
Blucora, Inc. | Q2 2020 Form 10-Q 9

consolidated financial statements and accompanying notes in Part II, Item 8 of the Company’sour Annual Report on Form 10-K for the year ended December 31, 2018.2019. Interim results are not necessarily indicative of results for a full year.
9

Cash, cash equivalents, and restricted cash:cash
The following table presents cash, cash equivalents, and restricted cash as reported on the consolidated balance sheets that equaland the total amounts on the condensed consolidated statements of cash flows (in thousands):
September 30,December 31,
201920182018June 30, 2020December 31, 2019
Cash and cash equivalentsCash and cash equivalents$97,466  $88,274  $84,524  Cash and cash equivalents$90,081  $80,820  
Cash segregated under federal or other regulationsCash segregated under federal or other regulations1,284  317  842  Cash segregated under federal or other regulations1,266  5,630  
Total cash, cash equivalents, and restricted cash Total cash, cash equivalents, and restricted cash  $98,750  $88,591  $85,366  Total cash, cash equivalents, and restricted cash$91,347  $86,450  

We generally invest our available cash in high-quality marketable investments, which primarily consist of investments in money market funds invested in securities issued by agencies of the U.S. government. We may invest, from time-to-time, in other vehicles, such as debt instruments issued by the U.S. federal government and its agencies, international governments, municipalities and publicly held corporations, as well as commercial paper and insured time deposits with commercial banks. Specific holdings can vary from period to period depending upon our cash requirements. Such investments are reported at fair value on the consolidated balance sheets.
Cash segregated under federal and other regulations is held in a separate bank account for the exclusive benefit of the Company’sour Wealth Management customers. Restricted cashbusiness clients and is pledged as collateralconsidered restricted cash.
Recently adopted accounting pronouncements
Changes to GAAP are established by the Financial Accounting Standards Board (“FASB”) in the form of accounting standards updates (“ASUs”) to the FASB’s Accounting Standards Codification (“ASC”). We consider the applicability and impact of all recent ASUs. ASUs not listed below were assessed and determined to be either not applicable or are expected to have minimal impact on our consolidated financial position and results of operations. We have recently adopted the ASUs described below.
Measurement of Credit Losses. In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which changes how entities account for certaincredit losses of financial assets measured at amortized cost. ASU 2016-13 requires financial assets measured at amortized cost to be presented on the balance sheet at the net amount expected to be collected.
The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the Company's bankingfinancial asset to present the net carrying value at the amount expected to be collected on the financial asset. ASU 2016-13 replaces the previous “incurred loss” model with a “current expected credit loss” model that requires consideration of a broader range of information to estimate expected credit losses over the lifetime of the financial asset. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, including the interim periods within those fiscal years. Entities must apply ASU 2016-13 using a modified-retrospective approach by recording a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which ASU 2016-13 is effective.
We adopted ASU 2016-13 effective January 1, 2020. Our financial assets within the scope of ASU 2016-13 primarily consisted of our commissions receivable and lease arrangements,accounts receivable. While we have implemented the current expected credit loss model and assessed the impact of this new model on our in-scope financial assets, the adoption of ASU 2016-13 did not have a material impact on our consolidated financial statements and did not result in a cumulative-effect adjustment to retained earnings as of January 1, 2020.
Goodwill. In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350): Accounting for Goodwill (“ASU 2017-04”), which simplifies the subsequent measurement of goodwill by eliminating the previously applicable step two from the goodwill impairment test. Under the amended guidance of ASU 2017-04, when required to test goodwill for recoverability, an entity will perform its goodwill impairment test by comparing the fair value of the reporting unit to its carrying value and recognizing an impairment charge for the amount by which the carrying value exceeds the fair value of the reporting unit. ASU 2017-04 is effective for fiscal years beginning after December 15, 2019, and entities must apply ASU 2017-04 on a prospective basis.
Blucora, Inc. | Q2 2020 Form 10-Q 10

We adopted ASU 2017-04 effective January 1, 2020 and applied this new guidance to the goodwill impairment test we performed as of March 31, 2020. For more information on this impairment test, see “Note 5—Goodwill and Other Intangible Assets.”

Note 3: 1st Global Acquisition
On May 6, 2019, we closed the acquisition of all of the issued and outstanding common stock of 1st Global, Inc. and 1st Global Insurance Services, Inc. (together, “1st Global”), a tax-focused wealth management company, for a cash purchase price of $180.0 million (the “1st Global Acquisition”). The operations of 1st Global are included in prepaid expenses and other current assets, net and other long-term assets.
Business combinations and intangible assets including goodwill: We account for business combinations usingour operating results as part of the acquisition method.Wealth Management segment from the date of the 1st Global Acquisition.
The purchase price of the Acquisition has beenwas allocated to 1st Global’s tangible assets, identifiable intangible assets, and assumed liabilities based on their estimated fair values at the time of the Acquisition. This allocation involves a number of assumptions, estimates, and judgments that could materially affect the timing or amounts recognized in the Company's financial statements. The most subjective areas include determining the fair value of the following:
•intangible assets, including the valuation methodology, estimations of future cash flows, discount rates, growth rates, as well as the estimated useful life of intangible assets;
•deferred tax assets and liabilities and uncertain tax positions, which are initially estimated as of the Acquisition date;
•pre-existing liabilities or legal claims, and deferred revenue, in each case as may be applicable; and
•goodwill as measured as the excess of consideration transferred over the net of the Acquisition date fair values of the assets acquired and the liabilities assumed.
The Company's assumptions and estimates are based upon comparable market data and information obtained from the Company's management and the management of 1st Global.
The following table presents changes in the carrying value of goodwill by reportable segment during the nine months ended September 30, 2019, in thousands:
December 31, 2018AcquiredDisposedSeptember 30, 2019
Wealth Management$356,042  $118,422  $—  $474,464  
Tax Preparation192,643  —  (4,102) 188,541  
Total goodwill$548,685  $118,422  $(4,102) $663,005  

Intangible asset impairment: The Company evaluates indefinite-lived intangible assets for impairment annually, as of November 30, or more frequently when events or circumstances indicate that impairment may have occurred. The Company evaluated the HD Vest trade name indefinite-lived asset following the Rebranding by performing a quantitative impairment test of that intangible asset. This test compared the carrying value of the HD Vest trade name intangible asset to its fair value.
Fair value typically is estimated using the present value of future discounted cash flows, an income approach. The significant estimates in the discounted cash flow model include the weighted-average cost of capital and long-term rates of revenue growth and/or profitability of our businesses. The weighted-average cost of capital considers the relevant risk associated with business-specific characteristics and the uncertainty related to the ability to achieve the projected cash flows. These estimates and the resulting valuations require significant judgment. See "Note 12: Intangible Asset Impairment" for further discussion.
Fair value of financial instruments: The Company measures its cash equivalents at fair value. The Company considers the carrying values of accounts receivable, commissions receivable, other receivables, prepaid expenses, other current assets, accounts payable, commissions and advisory fees payable, accrued expenses, and other current liabilities to approximate fair values primarily due to their short-term natures.
10

Concentration of credit risk:  Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash equivalents, short-term investments, trade accounts receivable, and commissions receivable. These instruments are generally unsecured and uninsured.
For cash equivalents, short-term investments, and commissions receivable, the Company attempts to manage exposure to counterparty credit risk by only entering into agreements with major financial institutions and investment sponsors that are expected to be able to fully perform under the terms of their respective agreements.
Accounts receivable are typically unsecured and are derived from revenues earned from customers primarily located in the United States operating in a variety of geographic areas. The Company performs ongoing credit evaluations of its customers and maintains allowances for potential credit losses.
Recent accounting pronouncements: Changes to GAAP are established by the Financial Accounting Standards Board ("FASB") in the form of accounting standards updates ("ASUs") to the FASB’s Accounting Standards Codification ("ASC"). The Company considers the applicability and impact of all recent ASUs. ASUs and ASCs not listed below were assessed and either were determined to not be applicable or are expected to have minimal impact on the Company’s consolidated financial position and results of operations. The Company currently is evaluating, or has adopted, ASUs and ASCs that impact the following areas:
Leases (ASU 2016-02) - In February 2016, the FASB issued guidance codified in ASC 842, "Leases" ("ASC 842"), which supersedes the guidance in ASC 840 "Leases." Under ASC 842, lease assets and liabilities, whether arising from leases that are considered operating or finance (capital) will be recognized on the balance sheet. Lease liabilities are measured as the present value of unpaid lease payments for operating leases where the Company is the lessee, and a corresponding right-of-use ("ROU") asset is recognized for the right to use the leased assets.
This guidance became effective on a modified retrospective basis-with various practical expedients related to leases that commenced before the effective date-for annual reporting periods, including interim reporting periods within those annual reporting periods, beginning after December 15, 2018. Prior comparable periods are presented in accordance with accounting guidance under ASC 840 "Leases" and were not restated.
The Company adopted ASC 842 on January 1, 2019 for all open leases with a term greater than one year as of the adoption date, using the modified retrospective method of adoption with a cumulative effect adjustment to retained earnings. The Company elected the package of practical expedients, for which there is no requirement to reassess lease existence, classification and initial direct costs, the hindsight practical expedient, for which the Company used hindsight in determining certain lease terms, and the short-term lease expedient, for which the Company considered all open leases with a term greater than one year as of the adoption date. The adoption resulted in $6.6 million of additional operating lease assets, $9.1 million of additional operating lease liabilities, and a $1.6 million adjustment to the opening balance of retained earnings as a result of reevaluating certain of the Company's lease terms as of the adoption date. The Company also reclassified, upon adoption, $0.9 million of other lease-related balances to reduce the measurement of lease assets.
The Company's lease terms are contractually fixed but may include extension or termination options reasonably assured to be exercised at lease inception, which are included in the recognition of ROU assets and lease liabilities. The Company’s leases do not contain residual value guarantees or material variable lease payments. The Company does not have any material restrictions or covenants imposed by leases that would impact the Company’s ability to pay dividends or cause the Company to incur additional financial obligations.
The Company’s leases are not complex; therefore, there were no significant assumptions or judgments made in applying the requirements of ASC 842, including the determination of whether the contracts contained a lease, the allocation of consideration in the contracts between lease and non-lease components, and the determination of the discount rates for the leases.
Measurement of Credit Losses (ASU 2016-13) - In June 2016, the FASB issued an ASU that requires companies to measure credit losses utilizing a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. This ASU is effective for fiscal years beginning after December 15, 2019, including the interim periods within those fiscal years. The Company is currently assessing the impact of adopting this ASU, but based on a preliminary assessment, does not expect the adoption of this guidance to have a material impact on its consolidated financial statements and related disclosures.
Note 3: Business Combinations
On May 6, 2019, the Company closed the Acquisition of all of the issued and outstanding common stock of 1st Global for a cash purchase price of $180.0 million. The purchase price is subject to customary adjustment as well as certain indemnity escrows, in each case as described more fully in the stock purchase agreement governing the Acquisition. The purchase price has been allocated to 1st Global’s tangible assets, identifiable intangible assets, and assumed liabilities based on their estimated
11

fair values at the time of the Acquisition. The preliminary fair values of assets acquired and liabilities assumed in the 1st Global Acquisition were as follows (in thousands):
Tangible assets acquired, including cash of $12,389$37,153 
Goodwill118,422 
Identifiable intangible assets85,240 
Contingent liability(11,052)
Deferred revenues(17,715)
Other current liabilities(12,956)
Deferred tax liabilities, net(19,092)
Total$180,000 
Cash paid at Acquisition date$176,850 
Cash to be paid after Acquisition date3,150 
Purchase Price Allocation at
December 31, 2019		Purchase Price Allocation Adjustments Since
December 31, 2019		Final Purchase Price Allocation
Assets acquired:
Tangible assets acquired, including cash of $12,389$38,413  $—  $38,413  
Goodwill117,792  (666) 117,126  
Identifiable intangible assets83,980  —  83,980  
Liabilities assumed:
Contingent liability(11,052) —  (11,052) 
Deferred revenues(17,715) —  (17,715) 
Other current liabilities(12,956) 281  (12,675) 
Deferred tax liabilities, net(18,462) 385  (18,077) 
Total assets acquired and liabilities assumed$180,000  $—  $180,000  

The identifiable intangible assets were as follows (in thousands, except as otherwise indicated):
Estimated Fair ValueAccumulated Amortization through September 30, 2019Weighted Average Estimated Useful Life (in months)
Advisor relationships$78,400  $2,204  204
Developed technology2,980  567  29
Favorable lease1,260  73  84
Trade name1,000  135  36
Training materials900  121  36
Sponsor relationships700  24  144
Total identified intangible assets$85,240  $3,124  192

ForDuring the three and ninesix months ended SeptemberJune 30, 2019,2020, we adjusted the Company recognized amortization expensefair values of approximately $2.0 milliongoodwill, other current liabilities, and $3.1 million, respectively,deferred tax liabilities, net, due to the pre-acquisition 1st Global tax returns that were filed in "Amortizationthe first quarter of other acquired intangible assets" on2020. As one year has elapsed since the condensed consolidated statements of comprehensive income (loss).
Goodwill consists largely of synergistic opportunities1st Global Acquisition date, the measurement period for the Wealth Management business, including increased scale, enhanced capabilities,1st Global Acquisition has ended, and an integrated platform of brokerage, investment advisory and insurance services. Goodwillthe purchase price allocation is not expected to be deductible for income tax purposes, and is reported in the Company's Wealth Management segment.considered final.
As part of the 1st Global Acquisition, the Companywe assumed and recorded as part of the opening balance sheet, a contingent liability related to a regulatory inquiry.inquiry and recorded the contingent liability as part of the opening balance sheet. While the inquiry is still on-going, the Companywe evaluated a range of possible losses, and initially recorded a reserve of $10.0 million. During the three months ended September 30, 2019, the Company increased its reserve to $11.1 million.
The Company retained $3.2 million of the purchase price of the Acquisition, of which $2.1 million was paid to employees of 1st Global during the three months ended September 30, 2019, with the remainder to be paid to either 1st Global or former employees of 1st Global within the twelve months following the Acquisition.
The preliminary fair value estimates of the net assets acquired are based upon preliminary calculations and valuations, and those estimates and assumptions are subject to change as, due to the recent timing of the Acquisition, the Company obtains additional information for those estimates during the measurement period (up to one year from the Acquisition date). The excess of the total consideration over the tangible assets, identifiable intangible assets, and assumed liabilities was recorded as goodwill.
During the three months ended September 30, 2019, the Company adjusted its preliminary fair value estimates and estimated useful lives based upon information obtained through September 30, 2019, which resultedresulting in an insignificant impact to the Company's operating results. These adjustments related to estimated intangible asset fair values (primarily related to the advisors relationships intangible asset), a contingent liability deferred tax liabilities, net, and goodwill.


The primary areasreserve balance (including accrued interest) of the acquisition accounting that had not yet been finalized as of September$11.5 million at June 30, 2019 related to deferred taxes, which would result in a change to goodwill.
The gross contractual amount of acquired accounts receivable, including commissions receivable, was $6.7 million. As an insignificant amount of these receivables was expected to be uncollectible, the acquired amount approximates fair value.
During the nine months ended September 30, 2019, the Company incurred transaction costs of $6.5 million associated with the Acquisition, which were recognized in "General and administrative expense" on the condensed consolidated statements of comprehensive income (loss).
The operations of 1st Global are included in the Company's operating results as part of the Wealth Management segment from the date of the Acquisition. From the date of the Acquisition, 1st Global contributed approximately $73.0 million of revenue and $0.1 million of loss before income taxes to the Company.
Pro forma financial information of the 1st Global Acquisition:
The financial information in the table below summarizes the combined results of operations of Blucora and 1st Global, on a pro forma basis, for the period in which the Acquisition occurred and the prior reporting period as though the companies had been combined as of the beginning of each period presented. Pro forma adjustments have been made to include amortization expense on the definite-lived intangible assets identified in the Acquisition, debt-related expenses associated with the credit facility used to finance the Acquisition, and to remove Acquisition-related transaction costs. Income taxes also have been adjusted for the effect of these items. The following pro forma financial information is presented for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved had the Acquisition occurred at the beginning of the period presented (amounts in thousands):

Three months ended September 30,Nine months ended September 30,
2019201820192018
Revenue$149,016  $138,566  $627,824  $588,342  
Net income (loss)$(62,386) $(14,147) $18,877  $58,235  
2020.

Note 4: Segment Information and Revenues
The Company hasWe have 2 reportable segments: (1) the Wealth Management segment and (2) the Tax Preparation segment. The Company’sOur Chief Executive Officer is itsthe chief operating decision maker and reviews financial information presented on a disaggregated basis. This information is used for purposes of allocating resources and evaluating financial performance.The operations
We do not allocate certain general and administrative costs (including personnel and overhead costs), stock-based compensation, depreciation, amortization of 1st Globalintangible assets, acquisition and integration costs, executive transition costs, headquarters relocation costs, or impairment of goodwill to the reportable segments. Such amounts are includedreflected in the Company'stable below under the heading “Corporate-level activity.” In addition, we do not allocate other loss, net, or income taxes to the reportable segments. We do not report assets or capital expenditures by segment to the chief operating results as part of the Wealth Management segment from the date of the Acquisition.decision maker.
Blucora, Inc. | Q2 2020 Form 10-Q 11

Information on reportable segments currently presented to the Company’sour chief operating decision maker and a reconciliation to consolidated net income (loss) are presented below (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2019  2018  2019  2018  
Revenue:
Wealth Management$145,428  $91,887  $362,791  $275,984  
Tax Preparation3,588  3,498  205,733  183,214  
Total revenue149,016  95,385  568,524  459,198  
Operating income (loss):
Wealth Management20,631  12,891  49,150  38,920  
Tax Preparation(12,075) (6,936) 108,565  95,991  
Corporate-level activity(80,667) (16,647) (131,683) (53,740) 
Total operating income (loss)(72,111) (10,692) 26,032  81,171  
Other loss, net(2,606) (3,863) (11,682) (11,850) 
Income tax benefit (expense)12,331  818  16,470  (2,052) 
Net income (loss)$(62,386) $(13,737) $30,820  $67,269  


Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
Revenue:
Wealth Management$115,884  $127,831  $260,873  $217,363  
Tax Preparation45,238  65,909  163,569  202,145  
Total revenue161,122  193,740  424,442  419,508  
Operating income (loss):
Wealth Management11,731  16,979  34,329  28,519  
Tax Preparation6,659  41,368  44,412  120,640  
Corporate-level activity(22,996) (30,317) (325,186) (51,016) 
Total operating income (loss)(4,606) 28,030  (246,445) 98,143  
Other loss, net(5,288) (5,118) (11,423) (9,076) 
Income tax benefit (expense)59,539  8,124  (7,981) 4,139  
Net income (loss) attributable to Blucora, Inc.$49,645  $31,036  $(265,849) $93,206  
Revenues by major category within each segment are presented below (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,Three Months Ended June 30,Six Months Ended June 30,
2019  2018  2019  2018  2020201920202019
Wealth Management:Wealth Management:Wealth Management:
AdvisoryAdvisory$66,303  $61,410  $145,060  $101,167  
CommissionCommission$52,623  $41,015  $137,851  $124,269  Commission39,836  48,068  90,416  85,228  
Advisory75,579  41,443  176,746  120,802  
Asset-basedAsset-based13,618  6,979  36,530  21,457  Asset-based3,981  13,219  14,560  22,912  
Transaction and feeTransaction and fee3,608  2,450  11,664  9,456  Transaction and fee5,764  5,134  10,837  8,056  
Total Wealth Management revenueTotal Wealth Management revenue$145,428  $91,887  $362,791  $275,984  Total Wealth Management revenue$115,884  $127,831  $260,873  $217,363  
Tax Preparation:Tax Preparation:Tax Preparation:
ConsumerConsumer$4,280  $3,246  $190,908  $168,295  Consumer$44,421  $62,686  $148,242  $186,628  
ProfessionalProfessional(692) 252  14,825  14,919  Professional817  3,223  15,327  15,517  
Total Tax Preparation revenueTotal Tax Preparation revenue$3,588  $3,498  $205,733  $183,214  Total Tax Preparation revenue$45,238  $65,909  $163,569  $202,145  

During the three months ended September 30, 2019, the Company recorded an immaterial adjustment to previously-recognized Professional Tax Preparation revenues, which did not have an impact on revenues for the nine months ended September 30, 2019.
Wealth Management revenue recognition:recognition
Wealth Managementmanagement revenue primarily consists primarily of commissionadvisory revenue, advisorycommission revenue, asset-based revenue, and transaction and fee revenue.
The Company's Wealth Management revenues are earned from customers primarily located in the United States.
Detailstiming of Wealth Management revenues arerevenue recognition was as follows (in thousands):
Three months ended September 30,  Three months ended June 30,
2019201820202019
Recognized Upon Transaction  Recognized Over Time  Total  Recognized Upon Transaction  Recognized Over Time  Total  Recognized Upon TransactionRecognized Over TimeTotalRecognized Upon TransactionRecognized Over TimeTotal
Advisory revenueAdvisory revenue$—  $66,303  $66,303  $—  $61,410  $61,410  
Commission revenueCommission revenue$23,195  $29,428  $52,623  $16,929  $24,086  $41,015  Commission revenue14,803  25,033  39,836  20,469  27,599  48,068  
Advisory revenue—  75,579  75,579  —  41,443  41,443  
Asset-based revenueAsset-based revenue—  13,618  13,618  —  6,979  6,979  Asset-based revenue—  3,981  3,981  —  13,219  13,219  
Transaction and fee revenueTransaction and fee revenue1,054  2,554  3,608  576  1,874  2,450  Transaction and fee revenue1,137  4,627  5,764  800  4,334  5,134  
Total$24,249  $121,179  $145,428  $17,505  $74,382  $91,887  
Total Wealth Management revenueTotal Wealth Management revenue$15,940  $99,944  $115,884  $21,269  $106,562  $127,831  
Blucora, Inc. | Q2 2020 Form 10-Q 12


Nine months ended September 30,
20192018Six months ended June 30,
Recognized Upon Transaction  Recognized Over Time  Total  Recognized Upon Transaction  Recognized Over Time  Total  20202019
Recognized Upon TransactionRecognized Over TimeTotalRecognized Upon TransactionRecognized Over TimeTotal
Advisory revenueAdvisory revenue$—  $145,060  $145,060  $—  $101,167  $101,167  
Commission revenueCommission revenue$59,348  $78,503  $137,851  $51,193  $73,076  $124,269  Commission revenue38,184  52,232  90,416  36,153  49,075  85,228  
Advisory revenue—  176,746  176,746  —  120,802  120,802  
Asset-based revenueAsset-based revenue—  36,530  36,530  —  21,457  21,457  Asset-based revenue—  14,560  14,560  —  22,912  22,912  
Transaction and fee revenueTransaction and fee revenue2,624  9,040  11,664  2,573  6,883  9,456  Transaction and fee revenue2,996  7,841  10,837  1,570  6,486  8,056  
Total$61,972  $300,819  $362,791  $53,766  $222,218  $275,984  
Total Wealth Management revenueTotal Wealth Management revenue$41,180  $219,693  $260,873  $37,723  $179,640  $217,363  

Tax Preparation revenue recognition: The Company derives
We generate revenue from the sale of Tax Preparationtax preparation digital services, ancillary services, packaged tax preparation software, ancillary services, and multiple element arrangements that may include a combination of these items.
The timing of Tax Preparation revenue recognition was as follows (in thousands):
Three months ended June 30,
20202019
Recognized Upon TransactionRecognized Over TimeTotalRecognized Upon TransactionRecognized Over TimeTotal
Consumer$44,420  $1  $44,421  $62,057  $629  $62,686  
Professional187  630  817  2,459  764  3,223  
Total Tax Preparation revenue$44,607  $631  $45,238  $64,516  $1,393  $65,909  

Six months ended June 30,
20202019
Recognized Upon TransactionRecognized Over TimeTotalRecognized Upon TransactionRecognized Over TimeTotal
Consumer$148,241  $1  $148,242  $185,072  $1,556  $186,628  
Professional13,181  2,146  15,327  13,301  2,216  15,517  
Total Tax Preparation revenue$161,422  $2,147  $163,569  $198,373  $3,772  $202,145  

Note 5: Goodwill and Other Intangible Assets
The following table presents goodwill by reportable segment (in thousands):
Wealth ManagementTax PreparationTotal
Balance as of December 31, 2019$473,833  $188,542  $662,375  
Purchase accounting adjustment(666) —  (666) 
Impairment(270,625) —  (270,625) 
Balance as of June 30, 2020$202,542  $188,542  $391,084  
14Blucora, Inc. | Q2 2020 Form 10-Q 13

Ancillary services primarily include refund payment transferGoodwill represents the cost of an acquisition less the fair value of the net identifiable assets of the acquired business. We evaluate goodwill for impairment annually, as of November 30, or more frequently when events or circumstances indicate it is more likely than not that the fair value of one or more of our reporting units is less than its carrying amount. To determine whether it is necessary to perform a goodwill impairment test, we first assess qualitative factors to evaluate whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. We may elect to perform a goodwill impairment test without completing a qualitative assessment.
Beginning in March 2020, the coronavirus pandemic had a significant negative impact on the U.S. and audit defense. The Company’sglobal economy and caused substantial disruption in the U.S. and global securities markets, and as a result, negatively impacted certain key Wealth Management business drivers, such as client asset levels and interest rates. These macroeconomic and Company-specific factors, in totality, served as a triggering event that resulted in the testing of the goodwill of the Wealth Management reporting unit and the Tax Preparation revenues are earned from customers primarily locatedreporting unit for potential impairment.
As part of the goodwill impairment test, we compared the estimated fair values of the Wealth Management and Tax Preparation reporting units to their respective carrying values. Estimated fair value was calculated using Level 3 inputs and utilized a blended valuation method that factored in the United States.income approach and the market approach as of March 31, 2020. The income approach estimated fair value by using the present value of future discounted cash flows. Significant estimates used in the discounted cash flow model included our forecasted cash flows, our long-term rates of growth, and our weighted average cost of capital. The weighted average cost of capital factors in the relevant risk associated with business-specific characteristics and the uncertainty related to the ability to achieve our projected cash flows. The market approach estimated fair value by taking income-based valuation multiples for a set of comparable companies and applying the valuation multiple to each reporting unit’s income.
DetailsFor the Wealth Management reporting unit, the carrying value of the reporting unit exceeded its fair value by $270.6 million. Therefore, we recorded an impairment of goodwill of $270.6 million for the three months ended March 31, 2020. For the Tax Preparation revenues are (in thousands):reporting unit, the carrying value of the reporting unit was significantly below its fair value, and therefore, no impairment of goodwill was deemed necessary.
Three months ended September 30,
20192018
Recognized Upon TransactionRecognized Over TimeTotalRecognized Upon TransactionRecognized Over TimeTotal
Consumer$3,268  $1,012  $4,280  $3,246  $—  $3,246  
Professional(619) (73) (692) 182  70  252  
Total$2,649  $939  $3,588  $3,428  $70  $3,498  

Nine months ended September 30,
20192018
Recognized Upon TransactionRecognized Over TimeTotalRecognized Upon TransactionRecognized Over TimeTotal
Consumer$188,340  $2,568  $190,908  $168,295  $—  $168,295  
Professional12,682  2,143  14,825  12,497  2,422  14,919  
Total$201,022  $4,711  $205,733  $180,792  $2,422  $183,214  
While no goodwill impairment triggering events were identified during the three months ended June 30, 2020, the Wealth Management reporting unit is considered to be at risk for a future impairment of its goodwill in the event of a further decline in general economic, market, or business conditions, or any significant unfavorable changes in our forecasted revenue, expenses, cash flows, weighted average cost of capital, and/or market valuation multiples. We will continue to monitor for events and circumstances that could negatively impact the key assumptions in determining the fair value of the Wealth Management reporting unit.

Note 6: Debt
The Company’s debt consisted of the following as of the periods indicated in the table below (in thousands):
 June 30, 2020December 31, 2019
 Principal
amount		DiscountDebt issuance costsNet 
carrying
value		Principal
amount		DiscountDebt issuance costsNet 
carrying
value
Senior secured credit facility$389,062  $(1,228) $(5,043) $382,791  $399,687  $(1,366) $(5,608) $392,713  
Less: Current portion of long-term debt, net(1,230) (11,228) 
Long-term debt, net$381,561  $381,485  
In May 2017, we entered into a credit agreement (as the same has been amended, the “Credit Agreement”) with a syndicate of lenders that provides for a term loan facility (the “Term Loan”) and a revolving line of credit (including a letter of credit sub-facility) (the “Revolver”) for working capital, capital expenditures, and general business purposes (the “Senior Secured Credit Facility”).
Blucora, Inc. | Q2 2020 Form 10-Q 14

Credit Agreement Amendments No. 1 and No. 2
In November 2017, we amended the Credit Agreement in order to refinance and reprice the initial Term Loan. In May 2019, we amended the Credit Agreement to, among other things, increase the outstanding principal amount of the Term Loan by $125.0 million to finance the 1st Global Acquisition.
Credit Agreement Amendment No. 3
The Senior Secured Credit Facility includes financial and operating covenants, including a Consolidated Total Net Leverage Ratio (as defined in the Credit Agreement) that governs the Revolver. On May 1, 2020, we entered into Amendment No. 3 to the Credit Agreement (“Credit Agreement Amendment No. 3”). This amendment amended the Credit Agreement to, among other things: (i) provide that, during the period commencing on the effective date of Credit Agreement Amendment No. 3 and ending on December 31, 2020 (the “Third Amendment Relief Period”), if an advance under the Revolver is requested, then the Company must be in pro forma compliance with certain covenants, (ii) provide that, for purposes of determining compliance with the Consolidated Total Net Leverage Ratio for the Revolver, during the Third Amendment Relief Period certain limitations to add-backs do not apply when calculating Consolidated EBITDA (as defined in the Credit Agreement), (iii) solely with respect to the Revolver, add restrictions on certain restricted payments during the Third Amendment Relief Period, and (iv) solely with respect to the Revolver, if the Revolver usage is over $0 on the last day of any calendar quarter during the Third Amendment Relief Period, impose a minimum liquidity financial covenant that requires the Company and its Restricted Subsidiaries (as defined in the Credit Agreement) to maintain liquidity of at least $115.0 million on the last day of such quarter. Solely with respect to the Revolver and solely if the Revolver usage exceeds $0 on the last day of any calendar quarter during the Third Amendment Relief Period, Credit Agreement Amendment No. 3 increases the maximum Consolidated Total Net Leverage Ratio to (i) 5.75 to 1.00 for the fiscal quarter ended June 30, 2020 and (ii) 3.75 to 1.00 for the fiscal quarters ending September 30, 2020 and December 31, 2020.
Credit Agreement Amendment No. 4
As of June 30, 2020, the Senior Secured Credit Facility provided for up to $565.0 million of borrowings and consisted of a committed $65.0 million under the Revolver and a $500.0 million Term Loan that mature on May 22, 2022 and May 22, 2024, respectively. Obligations under the Senior Secured Credit Facility are guaranteed by certain of the Company’s subsidiaries and secured by substantially all the assets of the Company and certain of its subsidiaries (including certain subsidiaries acquired in the HKFS Acquisition and certain other material subsidiaries). As of June 30, 2020, we had $389.1 million in principal amount outstanding under the Term Loan and no amounts outstanding under the Revolver. Based on aggregate loan commitments as of June 30, 2020, approximately $65.0 million was available for future borrowing under the Senior Secured Credit Facility.
On July 1, 2020, the Company entered into Amendment No. 4 to the Credit Agreement (“Credit Agreement Amendment No. 4”) in connection with the closing of the HKFS Acquisition (as described in more detail in “Note 14—Subsequent Events”).
Pursuant to Credit Agreement Amendment No. 4, the Credit Agreement was amended to, among other things, (i) increase the Term Loan by an aggregate principal amount of $175.0 million and (ii) increase the applicable margin under the Term Loan to 4.00% for Eurodollar Rate Loans (as defined in the Credit Agreement) and 3.00% for ABR Loans (as defined in the Credit Agreement). Approximately $100.0 million of the proceeds from the increase to the Term Loan were used to fund the purchase price of the HKFS Acquisition, as well as to pay related fees and expenses. We intend to use the remainder of the proceeds from the increase to the Term Loan for additional working capital. As Credit Agreement Amendment No. 4 was entered into on July 1, 2020, the consolidated financial statements as of and for the three and six months ended June 30, 2020 did not reflect the increase to the Term Loan.
The Company is required to make mandatory annual prepayments on the Term Loan in certain circumstances, including in the event that the Company generates Excess Cash Flow (as defined in the Credit Agreement) in a given fiscal year. The Credit Agreement permits the Company to voluntarily prepay the Term Loan without premium or penalty, subject to a 1.00% premium for certain prepayments made during the first six months following the effective date of Credit Agreement Amendment No. 4. The Company is required to make principal amortization payments on the Term Loan quarterly on the last business day of each March, June, September and December, beginning on September 30, 2020, in an amount equal to $0.5 million (subject to reduction for prepayments), with the remaining principal amount of the Term Loan due on the maturity date of May 22, 2024.
Blucora, Inc. | Q2 2020 Form 10-Q 15

Depending on the Consolidated First Lien Net Leverage Ratio (as defined in the Credit Agreement), the applicable interest rate margin on the Revolver is from 2.75% to 3.25% for Eurodollar Rate Loans and 1.75% to 2.25% for ABR Loans. Interest is payable at the end of each interest period.
Note 7: Leases
Our leases are primarily related to office space and are classified as operating leases. Operating lease expense, net of sublease income, is recognized in “General and administrative” expense on the condensed consolidated statements of comprehensive income (loss). Lease expense, cash paid on operating lease liabilities, and lease liabilities obtained from new right-of-use assets for the three and six months ended June 30, 2020 and 2019 were as follows (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
Fixed lease expense$2,050  $1,229  $4,086  $2,255  
Variable lease expense286  294  587  642  
Lease expense, before sublease income2,336  1,523  4,673  2,897  
Sublease income(329) (319) (655) (635) 
Total lease expense, net of sublease income$2,007  $1,204  $4,018  $2,262  
Additional lease information:
Cash paid on operating lease liabilities$1,282  $1,156  $2,472  $2,105  
Lease liabilities obtained from new right-of-use assets$—  $6,469  $20,414  $15,829  
As of June 30, 2020, our weighted-average remaining operating lease term was approximately 11.6 years, and our weighted-average operating lease discount rate was 5.5%.
Operating leases were recorded on the condensed consolidated balance sheets as follows (in thousands):
June 30, 2020December 31, 2019
Lease liabilities—current$1,251  $3,223  
Lease liabilities—long-term36,407  5,865  
Total operating lease liabilities$37,658  $9,088  
The maturities of the Company's operating lease liabilities as of June 30, 2020 were as follows (in thousands):
(in thousands)
Undiscounted cash flows:
Remainder of 2020$1,142  
20212,270  
20224,706  
20234,808  
20244,911  
Thereafter$35,337  
Total undiscounted cash flows$53,174  
Imputed interest(15,516) 
Present value of cash flows$37,658  

In 2019, we signed a new corporate headquarters lease, which commenced in January 2020 and, therefore, a right-of-use asset of $20.7 million and a lease liability of $20.4 million was reflected on the condensed consolidated financial statements beginning in January 2020. The new headquarters lease is classified as an operating lease, and the term of the lease extends to June 2033. Lease payments begin in August 2021 and will result in
Blucora, Inc. | Q2 2020 Form 10-Q 16

$45.2 million in undiscounted fixed lease payments, which are partially offset by a $9.7 million tenant improvement allowance. Under the new lease, we will also make variable payments for operating expenses and utilities.

Note 8: Balance Sheet Components
Prepaid expenses and other current assets, net, consisted of the following (in thousands):
June 30, 2020December 31, 2019
Prepaid expenses$7,565  $7,982  
Prepaid regulatory license fees995  1,991  
Prepaid insurance774  1,492  
Prepaid advertising373  322  
Other current assets530  562  
Total prepaid expenses and other current assets, net$10,237  $12,349  
Accrued expenses and other current liabilities consisted of the following (in thousands):
June 30, 2020December 31, 2019
Salaries and related expenses$14,682  $15,053  
Contingent liability from 1st Global Acquisition11,477  11,052  
Retained purchase price from 1st Global Acquisition—  1,050  
Accrued vendor and advertising costs5,931  4,351  
Other3,024  4,638  
Total accrued expenses and other current liabilities$35,114  $36,144  

Note 5:9: Fair Value Measurements
In accordance with ASC 820, "FairFair Value Measurements and Disclosures", certain of the Company'sour assets and liabilities which are carried at fair value and are valued using inputs that are classified in one of the following three categories:
•Level 1: Quoted market prices in active markets for identical assets or liabilities.
•Level 2: Observable market-based inputs, other than Level 1, or unobservable inputs that are corroborated by market data.
•Level 3: Unobservable inputs that are not corroborated by market data and reflect the Company’sour own assumptions.
Assets measured on a recurring basis
The fair value hierarchy of the Company’sour financial assets and liabilities carried at fair value and measured on a recurring basis was as follows (in thousands):
  Fair value measurements at the reporting date using
 September 30, 2019Quoted prices in
active markets
using identical 
assets
(Level 1)		Significant other
observable
inputs
(Level 2)		Significant
unobservable
inputs
(Level 3)
Cash equivalents: money market and other funds$4,244  $4,244  $—  $—  
Total assets at fair value$4,244  $4,244  $—  $—  
  Fair value measurements at the reporting date using
 December 31, 2018Quoted prices in
active markets
using identical 
assets
(Level 1)		Significant other
observable
inputs
(Level 2)		Significant
unobservable
inputs
(Level 3)
Cash equivalents: money market and other funds$23,181  $23,181  $—  $—  
Total assets at fair value$23,181  $23,181  $—  $—  
Acquisition-related contingent consideration liability$1,275  $—  $—  $1,275  
Total liabilities at fair value$1,275  $—  $—  $1,275  

  Fair value measurements at the reporting date using
 June 30, 2020Quoted prices in
active markets
using identical 
assets
(Level 1)		Significant other
observable
inputs
(Level 2)		Significant
unobservable
inputs
(Level 3)
Cash equivalents: money market and other funds$4,289  $4,289  $—  $—  
Total assets at fair value$4,289  $4,289  $—  $—  
15Blucora, Inc. | Q2 2020 Form 10-Q 17

A reconciliation of Level 3 items measured at fair value on a recurring basis is as follows (in thousands):

Acquisition-related contingent consideration liability:
Balance as of December 31, 2018$1,275 
Payment(1,331)
Foreign currency transaction loss 56 
Balance as of September 30, 2019$— 

  Fair value measurements at the reporting date using
 December 31, 2019Quoted prices in
active markets
using identical 
assets
(Level 1)		Significant other
observable
inputs
(Level 2)		Significant
unobservable
inputs
(Level 3)
Cash equivalents: money market and other funds$4,264  $4,264  $—  $—  
Total assets at fair value$4,264  $4,264  $—  $—  
Cash equivalents are classified within Level 1 of the fair value hierarchy because the Company values themwe value cash equivalents utilizing quoted prices in active markets. Unrealized gains
Fair value of financial instruments
We consider the carrying values of accounts receivable, commissions receivable, other receivables, prepaid expenses, other current assets, accounts payable, commissions and losses are included in "Accumulatedadvisory fees payable, accrued expenses, and other comprehensive loss" oncurrent liabilities to approximate fair values primarily due to their short-term natures.
As of June 30, 2020, the condensed consolidated balance sheets,Term Loan’s principal amount was $389.1 million, and amounts reclassified out of comprehensive income (loss) into net income (loss) are determined on the basis of specific identification.
Note 6: Debt
The Company’s debt consistedfair value of the following asTerm Loan’s principal amount was $382.3 million. The fair value of the periods indicated in the table below (in thousands):
 September 30, 2019December 31, 2018
 Principal
amount		DiscountDebt issuance costsNet 
carrying
value		Principal
amount		DiscountDebt issuance costsNet 
carrying
value
Senior secured credit facilities$390,000  $(1,406) $(5,769) $382,825  $265,000  $(970) $(3,640) $260,390  

Senior secured credit facilities: The Company is party toTerm Loan’s principal amount was based on Level 2 inputs from a credit agreement with a syndicate of lenders, which provides for a term loan and revolving line of credit for working capital, capital expenditures and other general business needs (as amended, the "Blucora senior secured credit facilities"). The Blucora senior secured credit facilities provide for up to $565.0 million of borrowings, consisting of a committed $65.0 million revolving credit facility (including a letter of credit sub-facility) and a $500.0 million term loan facility that mature on May 22, 2022 and May 22, 2024, respectively. Obligations under the Blucora senior secured credit facilities are guaranteed by certain of Blucora's subsidiaries and secured by substantially all of the assets of the Company and certain of its subsidiaries.
The Blucora senior secured credit facilities include financial and operating covenants, including a consolidated total net leverage ratio, which are set forth in detail in the credit facility agreement.third-party market quotation. As of September 30, 2019, the Company was in compliance with all of the financial and operating covenants under the credit facility agreement.
Commencing December 31, 2019, principal payments of the term loan are due on a quarterly basis in an amount equal to $312,500 (subject to reduction for prepayments), with the remaining principal amount due on the maturity date of May 22, 2024. The Company also has the right to prepay the term loan and outstanding amounts under the revolving credit facility without any premium or penalty (other than customary Eurodollar breakage costs). Prepayments on the term loan are subject to certain prepayment minimums. The Company may be required to make annual prepayments on the term loan in an amount equal to a percentage of excess cash flow of the Company during the applicable fiscal year from 0% to 50%, depending on the Consolidated First Lien Net Leverage Ratio (as defined in the credit facility agreement) for such fiscal year.
The interest rate on the term loan is variable at the London Interbank Offered Rate, plus the applicable interest rate margin of 3.00% for Eurodollar Rate loans and 2.00% for ABR loans.
Depending on the Company’s Consolidated First Lien Net Leverage Ratio (as defined in the credit facility agreement), the applicable interest rate margin on the revolving credit facility is from 2.75% to 3.25% for Eurodollar Rate loans and 1.75% to 2.25% for ABR loans. Interest is payable at the end of each interest period. As of September 30, 2019, the Company had not borrowed any amounts under the revolving credit facility.
As of September 30, 2019, the term loan facility'sTerm Loan’s principal amount approximated its fair value as itthe Term Loan is a variable rate instrument and the currentits applicable margin approximates currentat that date approximated market conditions.
Note 7: Redeemable Noncontrolling Interests
In connection withAs of June 30, 2020 and December 31, 2019, the 2015 acquisition of HD Vest,Revolver’s principal amount outstanding approximated its fair value as the former management of HD Vest retained an ownership interest in that business. The Company was party to putRevolver is a variable rate instrument and call arrangements that became exercisable beginning in the first quarter of 2019 with respect to those interests. These put and call arrangements allowed certain former members of HD Vest managementits applicable margin approximated market conditions.
16

to require the Company to purchase their interests or allow the Company to acquire such interests for cash, respectively, within ninety days after the Company filed its Annual Report on Form 10-K for the year ended December 31, 2018, which occurred on March 1, 2019. All of these arrangements were settled in cash for $24.9 million in the second quarter of 2019.
Note 8:10: Commitments and Contingencies
Significant events since the year ended December 31, 2018, outside of the ordinary course of the Company’s business, include debt activity (as discussed further in "Note 6: Debt"), purchase commitments of approximately $3.4 million over the next year from 1st Global, and sublease income of $1.3 million primarily related to the sublease agreement for the Company's former headquarters in Bellevue, Washington. Additional information on the Company’s commitments and contingencies can be found in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.
Litigation and Other Matters: From time to time, the Company iswe are subject to various legal proceedings, regulatory matters or fines, or claims that arise in the ordinary course of business. The Company accruesWe accrue a liability when management believes that it is both probable that a liability has been incurred and the amount of loss can be reasonably estimated.
Aside from the contingent liability describeddisclosed in "Note 3: Business Combinations," the Company is“Note 3—1st Global Acquisition,” we are not currently party to any such matters for which it haswe have incurred a material liability on itsour consolidated balance sheets.

Note 9: Leases11: Other Loss, Net
The Company's leases are primarily related to office space. For the three and nine months ended September 30, 2019, the Company recognized operating lease costs of approximately $1.3 million and $3.6 million, respectively, in "General and administrative" expense“Other loss, net” on the condensed consolidated statements of comprehensive income (loss). For the three and nine months ended September 30, 2018, the Company recognized rent expense of approximately $0.7 million and $2.0 million, respectively, in "General and administrative" expense on the condensed consolidated statements of comprehensive income (loss).
As of September 30, 2019, the Company's weighted-average remaining operating lease term was approximately 4.5 years, and its weighted-average operating lease discount rate was 5.4%.
The maturitiesconsisted of the Company's operating lease liabilities as of September 30, 2019 are below. The Company's finance lease liabilities as of September 30, 2019 were $0.1 million.following (in thousands):
(in thousands)
Undiscounted cash flows:
2019 (for the three months remaining in 2019)$3,971  
20203,587  
20211,136  
20221,264  
20231,292  
20241,319  
Thereafter$1,799  
Total undiscounted cash flows$14,368  
Imputed interest(1,466) 
Present value of cash flows$12,902  
September 30, 2019
Short-term operating lease liabilities$4,115  
Long-term operating lease liabilities5,992  
Total operating lease liabilities$10,107  

Cash paid on operating lease liabilities was $3.4 million for the nine months ended September 30, 2019. Lease liabilities from new ROU assets obtained during the nine months ended September 30, 2019 were $6.7 million, primarily due to the Acquisition. In 2019, the Company signed a new corporate headquarters office lease, which is expected to commence in the first quarter of 2020.
Three months ended June 30,Six months ended June 30,
2020201920202019
Interest expense$4,840  $4,770  $10,156  $8,546  
Amortization of debt issuance costs331  375  644  547  
Accretion of debt discounts70  85  138  123  
Total interest expense5,241  5,230  10,938  9,216  
Interest income(11) (149) (25) (289) 
Other58  37  510  149  
Other loss, net$5,288  $5,118  $11,423  $9,076  

Note 12: Income Taxes
Three months ended June 30,Six months ended June 30,
 2020201920202019
Income tax benefit (expense)$59,539  $8,124  (7,981) 4,139  
17Blucora, Inc. | Q2 2020 Form 10-Q 18

Note 10: Income Taxes
The Company recorded income tax benefit of $12.3$59.5 million and $16.5income tax expense of $8.0 million infor the three and ninesix months ended SeptemberJune 30, 2019,2020, respectively. The Company's effective income tax rate for the three and six months ended June 30, 2020 differed from the 21% statutory rate primarily due to expiring net operating loss tax benefits in the current year, an adjustment to the valuation allowance against the deferred tax assets for net operating losses expected to expire in future years of $14.7 million, and non-deductible officer compensation expense. The goodwill impairment charge of $270.6 million did not have an impact on the estimated annual effective income tax rate.
The Company recorded income tax benefits of $8.1 million and $4.1 million for the three and ninesix months ended SeptemberJune 30, 2019, respectively. Income taxes for the three and six months ended June 30, 2019 differed from the 21% statutory rate, primarily due to excess tax benefits related to stock-based compensation and the release of valuation allowances, offset by the effect of state income taxes, non-deductible compensation, and acquisition costs. InAs part of the three months ended September 30, 2019, the Company’s1st Global Acquisition, we recorded $78.2 million of intangible assets that resulted in an $11.6 million discrete benefit of $10.6 million primarily related to the HD Vest trade name impairment and impacts associated with the Acquisition.
The Company recorded income tax benefit of $0.8 million and expense of $2.1 millionchange in the three and nine months ended September 30, 2018, respectively. Income taxes differed from the 21% statutory rate in three and nine months ended September 30, 2018, primarily due to the release of valuation allowances and the effect of state income taxes.allowance as intangible assets are not amortizable for tax purposes.

Note 11:13: Net Income (Loss) Per Share
"“Basic net income (loss) per share"share” is computedcalculated using the weighted average number of common shares outstanding during the period. "Diluted“Diluted net income (loss) per share"share” is computedcalculated using the weighted average number of common shares outstanding plus the number of dilutive potential common shares outstanding during the period. Dilutive potential common shares consist of the incremental common shares issuable upon the exercise of outstanding stock options and the vesting of unvested RSUs. Dilutive potential common shares are excluded from the calculation of diluted net income per share if their effect is antidilutive.
The computationcalculation of basic and diluted net income (loss) per share attributable to Blucora, Inc. is as follows (in thousands):
Three months ended September 30,Nine months ended September 30, Three months ended June 30,Six months ended June 30,
2019201820192018 2020201920202019
Numerator:Numerator:Numerator:
Income (loss) $(62,386) $(13,737) $30,820  $67,269  
Net income attributable to noncontrolling interests  —  (227) —  (654) 
Adjustment of redeemable noncontrolling interests  —  (3,537) —  (3,537) 
Net income (loss) attributable to Blucora, Inc.Net income (loss) attributable to Blucora, Inc.$(62,386) $(17,501) $30,820  $63,078  Net income (loss) attributable to Blucora, Inc.$49,645  $31,036  $(265,849) $93,206  
Denominator:Denominator:Denominator:
Weighted average common shares outstanding, basic48,652  47,712  48,456  47,191  
Weighted average common shares outstanding—basicWeighted average common shares outstanding—basic47,941  48,555  47,884  48,358  
Dilutive potential common sharesDilutive potential common shares—  —  1,140  2,101  Dilutive potential common shares151  1,267  —  1,323  
Weighted average common shares outstanding, diluted48,652  47,712  49,596  49,292  
Weighted average common shares outstanding—dilutedWeighted average common shares outstanding—diluted48,092  49,822  47,884  49,681  
Net income (loss) per share attributable to Blucora, Inc.:Net income (loss) per share attributable to Blucora, Inc.: Net income (loss) per share attributable to Blucora, Inc.:
BasicBasic$(1.28) $(0.37) $0.64  $1.34  Basic$1.04  $0.64  $(5.55) $1.93  
DilutedDiluted$(1.28) $(0.37) $0.62  $1.28  Diluted$1.03  $0.62  $(5.55) $1.88  
Shares excludedShares excluded3,084  3,675  1,217  441  Shares excluded2,349  311  2,722  284  
Shares were excluded from the computationcalculation of diluted earningsnet income (loss) per common share for these periods because their effect would have been anti-dilutive.
Note 12: Intangible Asset Impairment14: Subsequent Events
HKFS Acquisition
The carrying valueAs previously announced, on January 6, 2020, we entered into a Stock Purchase Agreement (as amended by the First Amendment to the Stock Purchase Agreement, dated as of April 7, 2020, and the Second Amendment to the Stock Purchase Agreement, dated as of June 30, 2020, the “Purchase Agreement”) with HKFS, the selling stockholders named therein (the “Sellers”), and JRD Seller Representative, LLC, as the Sellers’ representative. Pursuant to the terms and conditions of the Company's indefinite-lived intangiblePurchase Agreement, we agreed to acquire all of the issued and outstanding common stock of HKFS. The HKFS Acquisition enables us to expand our wealth management market
Blucora, Inc. | Q2 2020 Form 10-Q 19

presence and expand the ways we can work with CPA firms and tax professionals to deliver wealth management services to their clients.
On July 1, 2020, we closed the HKFS Acquisition for an upfront cash purchase price of $100.0 million, which was paid with a portion of the proceeds from the $175.0 million increase in the Term Loan. The purchase price is subject to customary adjustment and two potential post-closing earn-out payments by us as well as a customary indemnity escrow.
The amount of the two potential earn-out payments is determined based on advisory asset relatedlevels and the achievement of certain performance goals (i) for the period beginning on July 1, 2020 and ending on July 1, 2021 and (ii) for the period beginning on July 1, 2021 and ending on July 1, 2022. Pursuant to the HD Vest trade name priorPurchase Agreement, the maximum aggregate amount that we would be required to pay for each earn-out period is $30.0 million, provided that any unearned amounts during the first earn-out period may also be earned during the second earn-out period. If the asset values on the applicable measurement date fall below certain specified thresholds, we would not be required to make any earn-out payment to the Rebranding was $52.5 million. In connection withSellers for such period.
As the Rebranding, HD Vest was renamed Avantax Wealth ManagementHKFS Acquisition closed on July 1, 2020, the financial results of HKFS were not included in mid-September 2019. Accordingly, the Company evaluated the HD Vest trade name indefinite-lived asset by performing a quantitative impairment testour condensed consolidated financial statements as of that intangible asset. This test compared the carrying value of the HD Vest trade name asset to its fair value, and resulted in an impairment charge of approximately $50.9 million for the three and ninesix months ended June 30, 2020. We expect HKFS to be a part of our Wealth Management reporting segment beginning in the Quarterly Report on Form 10-Q for the three months ending September 30, 20192020.
We have incurred inception-to-date transaction costs related to the HKFS Acquisition of $6.0 million, of which $1.1 million and $2.8 million were recognized for the three and six months ended June 30, 2020, respectively. In addition, we have incurred inception-to-date integration costs of $1.0 million, which were recognized in the first quarter of 2020. These transaction and integration costs were recognized as “acquisition and integration” expense on the condensed consolidated statements of comprehensive income (loss). Following
As the impairment,initial accounting for the remaining useful lifeHKFS Acquisition is incomplete, we are not yet able to provide certain disclosures, such as amounts recognized as of the HD Vest trade name asset was estimated to be three years.
Fair value was estimated using the presentacquisition date for each major class of assets acquired and liabilities assumed, acquisition-date fair value of future discounted cash flows, an income approach. The significant estimates usedthe total consideration transferred, and pro forma revenue and earnings of the combined entity. These disclosures will be provided in the discounted cash flow model includeQuarterly Report on Form 10-Q for the weighted-average costthree months ending September 30, 2020.
Credit Agreement Amendment No. 4
On July 1, 2020, we entered into Credit Agreement Amendment No. 4, which amended certain terms of capitalthe Credit Agreement and long-term ratesincreased the aggregate principal amount of revenue growth. The weighted-average cost of capital considered the relevant risk associated with business-specific characteristics and the uncertainty related to the ability to achieve the projected cash flows. These estimates and the resulting valuations required significant judgment.
Note 13: Disposition of SimpleTax
Term Loan by $175.0 million. For additional information, see “Note 6—Debt.”
18Blucora, Inc. | Q2 2020 Form 10-Q 20

On September 4, 2019, the Company completed the disposition of all of the issued and outstanding stock of SimpleTax Software Inc. ("SimpleTax"), which was a provider of digital tax preparation services in Canada, for approximately $9.6 million. This amount was received in the third quarter of 2019 and is included in "Proceeds from sale of a business, net of cash" on the condensed consolidated statements of cash flows. The Company also recognized a gain on the sale of approximately $3.3 million in "Other loss, net" on the condensed consolidated statements of comprehensive income (loss).
The SimpleTax sale did not meet the requisite criteria to constitute discontinued operations, as the historical results of SimpleTax were not material to the Company’s consolidated results of operations. Prior to its sale, the operations of SimpleTax were included in the Company's operating results as part of the Tax Preparation segment.
Summarized financial information for SimpleTax prior to the sale was as follows (in thousands):
September 3, 2019December 31, 2018
Major classes of assets and liabilities:
Cash$2,199  $1,088  
Accounts receivable12  27  
Intangible assets119  143  
Goodwill4,199  4,102  
Total assets6,528  5,360  
Accrued expenses and other current liabilities$102  $77  
Long-term liabilities38  37  
Total liabilities140  114  


19

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with our consolidated financial statements and accompanying Notesnotes thereto included under Part I, Item 1 of this report and the section titled "Cautionary“Cautionary Statement Regarding Forward-Looking Statements"Statements” in this report,Form 10-Q, as well as with our consolidated financial statements, accompanying Notesnotes thereto, and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsOperations” included in our Annual Report on Form 10-K for the year ended December 31, 2018.2019.
Our Business
Blucora, Inc. (collectively, with its direct and indirect subsidiaries on a consolidated basis, the(the "“Company,," "Blucora,"” “Blucora,” “we,” “our,” or "we," "our" or "us"“us”) operatesis a leading provider of technology-enabled, tax-smart financial solutions to consumers, small business owners, tax professionals, financial professionals, and certified public accounting firms. Blucora helps people manage their financial lives and optimize their taxes through its two primary businesses: a(1) the Wealth Management business and a digital(2) the Tax Preparation business. Our common stock is listed on the NASDAQ Global Select Market under the symbol “BCOR.”
Wealth Management
The Wealth Management business consists of the operations of Avantax Wealth Management (which is comprised of what was formerly HD Vest and 1st Global, both (as further discussed below) (the “Avantax,”" the “Wealth Management business" business,”or the "Wealth“Wealth Management segment”).Avantax Wealth Management, which provides tax-focused wealth management solutions for financial advisors,professionals, tax preparers, certified public accounting firms, and their clients. Specifically,Avantax offers its services through its registered broker-dealer, registered investment advisor (“RIA”), and insurance agency subsidiaries and is the largest U.S. tax-focused independent broker-dealer. Avantax formerly operated under the HD Vest and 1st Global brands prior to the rebranding of the Wealth Management business:
•business to Avantax Wealth Management in 2019. As of June 30, 2020, 3,862 financial professionals, who served as independent contractors and had branch offices in all 50 states, utilized our Avantax platform and supported $68.5 billion of total client assets, including $26.6 billion of advisory assets. Avantax provides these financial professionals with an integrated platform of technology,technical, practice, and product support including brokerage, investment advisory and insurance services,tools to assist in making each financial advisor a comprehensive financial service center for his/his or her clients and/or clients of their respective firms;clients.
•On July 1, 2020, we acquired Honkamp Krueger Financial Services, Inc. (helps tax“HKFS”). HKFS operates as a captive, or employee-based, RIA and accounting professionals andwealth management business that partners with CPA firms integrate financial advisory services into their practices;
•recruits independent tax professionals with, or within, established tax practices and offers specialized training and support, which allows themin order to provide their respectiveconsumer and small business clients comprehensive wealth managementwith holistic planning and tax solutions; and
•generates revenue primarily through commissions, quarterly investmentfinancial advisory fees based on totalservices. As of June 30, 2020, HKFS supported $4.5 billion of client assets and other fees.
On May 6, 2019, we closed the acquisition of all of the issued and outstanding common stock of 1st Global,assets. We expect that HKFS will be a tax-focused wealth management company, for a cash purchase price of $180.0 million (the "Acquisition"). The purchase price was paid with a combination of (i) cash on hand and (ii) the proceeds from a $125.0 million increase in the term loan under the our credit agreement.
On September 9, 2019, we announced a rebrandingpart of our Wealth Management business to Avantax Wealth Management (the reporting segment beginning in the three months ending September 30, 2020. For additional information, see “"Rebranding"Business Developments—HKFS Acquisition). In connection with the Rebranding, ” below.HD Vest was re-named Avantax Wealth Management in mid-September 2019, and 1st Global converted in late October 2019. The Rebranding is designed to bring broader awareness to our Tax-Smart wealth management approach, providing tax-focused wealth management advice with technology-advantaged tools, allowing our financial advisors to easily provide Tax-Smart wealth solutions.
Tax Preparation
The Tax Preparation business consists of the operations of TaxAct, Inc. ("“TaxAct," ”the "“Tax Preparation business," ”or the "Tax“Tax Preparation segment"segment”). TaxAct and provides digital do-it-yourself (“DDIY”) tax preparation solutions for consumers, small business owners, and tax professionals.professionals through its website www.TaxAct.com. TaxAct generates revenue primarily through its digital service at www.TaxAct.com. The TaxAct webwww.TaxAct.com and its mobile applications.
Business Developments
HKFS Acquisition
siteOn January 6, 2020, we entered into a Stock Purchase Agreement (as amended by the First Amendment to the Stock Purchase Agreement, dated as of April 7, 2020, and the information containedSecond Amendment to the Stock Purchase Agreement, dated as of June 30, 2020, the “Purchase Agreement”) with HKFS, the selling stockholders named therein or connected thereto is not intended to be incorporated by reference into this report. On September 4, 2019, we sold SimpleTax Software, Inc. ((the "SimpleTax"“Sellers”), and JRD Seller Representative, LLC, as the Sellers’ representative. Pursuant to the terms and conditions of the Purchase Agreement, we agreed to acquire all of the issued and outstanding common stock of HKFS (the “HKFS Acquisition”).
On July 1, 2020, we closed the HKFS Acquisition for an upfront cash purchase price of $100.0 million, which was paid with a providerportion of digitalthe proceeds from the $175.0 million increase in the Term Loan (as defined and discussed in “Liquidity and Capital Resources—Indebtedness”). The purchase price is subject to customary adjustment and two potential post-closing earn-out payments by us as well as a customary indemnity escrow.
The amount of the two potential earn-out payments is determined based on advisory asset levels and the achievement of certain performance goals (i) for the period beginning on July 1, 2020 and ending on July 1, 2021 and (ii) for the period beginning on July 1, 2021 and ending on July 1, 2022. Pursuant to the Purchase Agreement,
Blucora, Inc. | Q2 2020 Form 10-Q 21

the maximum aggregate amount that we would be required to pay for each earn-out period is $30.0 million, provided that any unearned amounts during the first earn-out period may also be earned during the second earn-out period. If the asset values on the applicable measurement date fall below certain specified thresholds, we would not be required to make any earn-out payment to the Sellers for such period.

The complementary nature of the HKFS Acquisition is expected to expand our established leadership in tax-aware investing and enhance our ability to better service clients and enable better outcomes through the following primary drivers:
•Increasing our total addressable market by swiftly entering the large, adjacent captive RIA space.
•Expanding our product offerings, enabling us to serve an expanded set of CPA firms and tax preparationprofessionals, expanding the reach of our Tax-Smart Investing software, as well as enabling us to offer end-to-end retirement plan services for small business clients.
•Providing multiple avenues for enhancing future growth opportunities by improving asset retention, increasing prospect conversion, and offering turn-key retirement plan services to the full Avantax financial professional and client base, all on top of what is a highly scalable HKFS platform.
As the HKFS Acquisition closed on July 1, 2020, the financial results of HKFS were not included in Canada,our condensed consolidated financial statements as of and for approximately $9.6 million. Priorthe three and six months ended June 30, 2020.

For additional information on the HKFS Acquisition, see “Item 1. Financial Statements—Note 14.”
Coronavirus pandemic
Beginning in March 2020, the coronavirus pandemic had a significant negative impact on the U.S. and global economy and caused substantial disruption in the U.S. and global securities markets, and as a result, negatively impacted both our Wealth Management and Tax Preparation businesses.
In our Wealth Management business, the economic and financial market disruption caused by the coronavirus pandemic has negatively impacted the value of some of our clients’ assets, which has caused a corresponding decline in the amount of revenue that we generated from these client assets in the second quarter of 2020. Further, we have experienced a decline in transaction-based commission revenue from lower trading volumes, as well as significantly reduced cash sweep revenue due to its sale, SimpleTax was a componentchanges in prevailing interest rates. Positive financial market movement in the second quarter of 2020 increased advisory and brokerage asset balances, and we expect these higher client asset balances will benefit advisory fees and trailing commissions for the third quarter of 2020. Overall, revenues in our Wealth Management business will remain susceptible to being adversely affected in future periods in which pandemic-influenced economic and market factors remain present.
In our Tax Preparation business. See further discussion of the sale in "Note 13: Disposition of SimpleTax" of the Notes to Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this report.
Seasonality
Our Tax Preparation segment, our revenue and operating income generation is highly seasonal, with a significant portion of itsour annual revenue typically earned in the first four months of our fiscal year. During the third and fourth quarters, the Tax Preparation segment typically reports losses because revenue from the segment is minimal while core operating expenses continue. We anticipate that the seasonal natureAs a result of the coronavirus pandemic, the Internal Revenue Service (“IRS”) extended the filing and payment deadline for federal tax returns to July 15, 2020. This extension resulted in the shifting of a significant portion of Tax Preparation business will continuesegment revenue that is typically earned in the foreseeable future.first and second quarters of 2020 to the third quarter of 2020. In addition, sales and marketing expenses were elevated in the first and second quarters of 2020 due to incremental investment required in March as a result of weak performance through the first two months of the tax season, as well as increased marketing required due to the extended tax season. We expect elevated sales and marketing expenses in the third quarter of 2020 due to the extended tax season. As a result of these factors, our results of operations for our Tax Preparation segment were negatively impacted in the first and second quarters of 2020 compared to the corresponding periods in prior years.
For additional information on the effects of the coronavirus pandemic on our results of operations, see “Results of Operations” below. For more information on the risks related to the coronavirus pandemic, see Part II, Item 1A under the heading, “Pandemics, including the recent coronavirus pandemic, could have a Material Adverse Effect.”
1st Global Acquisition
On May 6, 2019, we closed the acquisition of all of the issued and outstanding common stock of 1st Global, Inc. and 1st Global Insurance Services, Inc. (together, “1st Global”), a tax-focused wealth management company,
Blucora, Inc. | Q2 2020 Form 10-Q 22

for a cash purchase price of $180.0 million (the “1st Global Acquisition”). The 1st Global Acquisition was strategically important as it expanded our presence as the leading U.S. tax-focused independent broker-dealer while also providing the scale to compete more broadly in the wealth management market. The operations of 1st Global are included in our operating results as part of the Wealth Management segment from the date of the 1st Global Acquisition. For additional information, see, “Item 1. Financial Statements—Note 3.”


20Blucora, Inc. | Q2 2020 Form 10-Q 23

RESULTS OF OPERATIONS
Summary
(In thousands, except percentages)(In thousands, except percentages)Three months ended September 30,Nine months ended September 30,(In thousands, except percentages)Three months endedQTDSix months endedYTD
(In thousands, except percentages)(In thousands, except percentages)June 30,ChangeJune 30,Change
20192018Change20192018Change20202019$%20202019$%
Revenue$149,016  $95,385  56 %$568,524  $459,198  24 %
Revenue:Revenue:
Wealth ManagementWealth Management$115,884  $127,831  $(11,947) (9)%$260,873  $217,363  $43,510  20 %
Tax PreparationTax Preparation45,238  65,909  (20,671) (31)%163,569  202,145  (38,576) (19)%
Total revenueTotal revenue$161,122  $193,740  $(32,618) (17)%$424,442  $419,508  $4,934  1 %
Operating income:Operating income:
Wealth ManagementWealth Management$11,731  $16,979  $(5,248) (31)%$34,329  $28,519  $5,810  20 %
Tax PreparationTax Preparation6,659  41,368  (34,709) (84)%44,412  120,640  (76,228) (63)%
Corporate-level activityCorporate-level activity(22,996) (30,317) 7,321  (24)%(325,186) (51,016) (274,170) 537 %
Operating income (loss)Operating income (loss) $(72,111) $(10,692) 574 %$26,032  $81,171  (68)%Operating income (loss)(4,606) 28,030  (32,636) (116)%(246,445) 98,143  (344,588) (351)%
Other loss, netOther loss, net(5,288) (5,118) (170) 3 %(11,423) (9,076) (2,347) 26 %
Income (loss) before income taxesIncome (loss) before income taxes(9,894) 22,912  (32,806) (143)%(257,868) 89,067  (346,935) (390)%
Income tax benefit (expense)Income tax benefit (expense)59,539  8,124  51,415  633 %(7,981) 4,139  (12,120) (293)%
Net income (loss) attributable to Blucora, Inc.Net income (loss) attributable to Blucora, Inc.$49,645  $31,036  $18,609  60 %$(265,849) $93,206  $(359,055) (385)%

Three months ended September 30, 2019 compared withFor the three months ended SeptemberJune 30, 2018
Revenue2020 compared to the three months ended June 30, 2019, net income increased approximately $53.6$18.6 million primarily due to an increase of $53.5 million in revenue related to our Wealth Management business, as discussed in the following "Segment Revenue/Operating Income" section.factors:
Operating loss increased approximately $61.4•Tax Preparation segment operating income decreased $34.7 million consisting ofprimarily due to a $53.6$18.3 million increasedecrease in consumer revenue that was more than offset byand a $115.1$14.0 million increase in operating expenses driven by an $11.3 million increase in sales and marketing expenses. Key changesThe decline in operating expenses were:consumer revenue primarily resulted from the extension of the federal tax return filing deadline to July 15, 2020.
•$45.8 million increase in the Wealth Management segment’ssegment operating income decreased $5.2 million primarily due to an $11.9 million decrease in revenue, partially offset by a $6.7 million decrease in operating expenses. Wealth management results were negatively affected mainly due to lower cash sweep revenue and lower commission revenue.
•Corporate-level expenses decreased $7.3 million primarily due to a $6.4 million decrease in acquisition and integration costs and a $2.5 million decrease in amortization of acquired intangible assets.
•The Company recorded an income tax benefit of $59.5 million for the three months ended June 30, 2020 compared to an income tax benefit of $8.1 million for the three months ended June 30, 2019.
For the six months ended June 30, 2020 compared to the six months ended June 30, 2019, net income decreased $359.1 million primarily due to the following factors:
•Tax Preparation segment operating income decreased $76.2 million primarily due to a $38.4 million decrease in consumer revenue. The decline in consumer revenue resulted from a decrease in consumer e-file activity that was primarily due to the extension of the federal tax return filing deadline to July 15, 2020. In addition, operating expenses (including approximately $41.2increased $37.7 million primarily due to increased marketing spend that mainly resulted from the extension of the tax season.
•Wealth Management segment operating expenses from 1st Global),income increased $5.8 million primarily due to an increase in commissionsadvisory and advisory fees paid to our financial advisors and an increase in sales and marketing expenses.commission revenue as a result of the 1st Global Acquisition, partially offset by lower cash sweep revenue.
•$5.2Corporate-level expenses increased $274.2 million increase in the Tax Preparation segment’s operating expenses, primarily due to an increase in personnel costs supporting product development, an increase in software development expenses and higher sales and marketing consulting efforts, partially offset by reduced media spend.
•$64.0a goodwill impairment of $270.6 million increase in corporate-level expense activity, primarily related to an intangible asset impairment in connection with the Rebranding, acquisition and integration costs, and additional depreciation and intangible asset amortization costs from 1st Global.
Nine months ended September 30, 2019 compared with nine months ended September 30, 2018
Revenue increased approximately $109.3 million due to an increase of $86.8 million in revenue related to our Wealth Management businessreporting unit and $22.5the recognition of $9.8 million in revenue related to our Tax Preparation business, as discussed inexecutive transition costs for the following "Segment Revenue/Operating Income" section.
Operating income decreased approximately $55.1 million, consisting of the $109.3 millionsix months ended June 30, 2020. The increase in revenue thatcorporate-level expenses was more thanpartially offset by a $164.5$3.8 million increasedecrease in operating expenses. Key changesstock-based compensation expense and a $2.5 million decrease in operating expenses were:
•$76.6 million increase in the Wealth Management segment’s operating expenses (including approximately $69.5 million of operating expenses from 1st Global), primarily due to an increase in commissionsacquisition and advisory fees paid to our financial advisors and an increase in sales and marketing expenses.integration costs.
•$9.9The Company recorded income tax expense of $8.0 million increase infor the Tax Preparation segment’s operating expenses, primarily duesix months ended June 30, 2020 compared to an increase in personnel costs supporting product development, an increase in software development expenses and higher sales and marketing consulting efforts, partially offset by reduced media spend.income tax benefit of $4.1 million for the six months ended June 30, 2019.
•Blucora, Inc.$77.9 million increase in corporate-level expense activity, primarily related to an intangible asset impairment, acquisition and integration costs, and additional depreciation and intangible asset amortization costs from 1st Global. | Q2 2020 Form 10-Q 24

SEGMENT REVENUE/REVENUE & OPERATING INCOME
The revenue and operating income amounts in this section are presented on a basis consistent with accounting principles generally accepted in the United States ("GAAP"“GAAP”) and include certain reconciling items attributable to each ofour segments. We have two reportable segments: (1) the segments.Wealth Management segment and (2) the Tax Preparation segment. Segment information appearing in "Note 4: Segment Information and Revenues" of the Notes to Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this report is presented on a basis consistent with our current internal management financial reporting. We have two reportable segments: Wealth Management and Tax Preparation. We do not allocate certain general and administrative costs (including personnel and overhead costs), stock-based compensation, depreciation, amortization of acquired intangible assets, restructuring,acquisition and integration costs, executive transition costs, headquarters relocation costs, or impairment of goodwill to the reportable segments. Such amounts are reflected under the heading “Corporate-level activity.” In addition, we do not allocate other loss, net, andor income taxes to segmentthe reportable segments.
Wealth Management
(In thousands, except percentages)Three months endedQTDSix months endedYTD
June 30,ChangeJune 30,Change
 20202019$%20202019$%
Revenue$115,884  $127,831  $(11,947) (9)%$260,873  $217,363  $43,510  20 %
Operating income$11,731  $16,979  $(5,248) (31)%$34,329  $28,519  $5,810  20 %
Segment margin10 %13 %13 %13 %
For the three months ended June 30, 2020 compared to the three months ended June 30, 2019, Wealth Management operating results. Rather, we analyze such generalincome decreased $5.2 million due to an $11.9 million decrease in revenue partially offset by a $6.7 million decrease in operating expenses.
•Wealth Management revenue decreased $11.9 million primarily due to a $9.2 million decrease in asset-based revenue that mainly resulted from lower cash sweep revenue, as well as an $8.2 million decrease in commission revenue. These decreases were partially offset by a $4.9 million increase in advisory revenue primarily due to an increase in advisory assets obtained in the 1st Global Acquisition.
•Wealth Management operating expenses decreased $6.7 million primarily due to a $3.6 million decrease in cost of revenue as a result of decreased commissions and administrative costsseparately under the heading "Corporate-level activity."advisory fees paid to our financial professionals, in addition to decreased expenses across our support functions.
For the six months ended June 30, 2020 compared to the six months ended June 30, 2019, Wealth Management operating income increased $5.8 million due to a $43.5 million increase in revenue partially offset by a $37.7 million increase in operating expenses.
•Wealth Management revenue increased $43.5 million primarily due to a $43.9 million increase in advisory revenue and a $5.2 million increase in commission revenue as a result of the 1st Global Acquisition. These increases were partially offset by an $8.4 million decrease in asset-based revenue that primarily resulted from lower cash sweep revenue.
•Wealth Management operating expenses increased $37.7 million primarily due to a $37.4 million increase in cost of revenue as a result of the 1st Global Acquisition.
21Blucora, Inc. | Q2 2020 Form 10-Q 25

Wealth Management
(In thousands, except percentages)Three months ended September 30,Nine months ended September 30,
 20192018Change20192018Change
Revenue$145,428  $91,887  58 %$362,791  $275,984  31 %
Operating income  $20,631  $12,891  60 %$49,150  $38,920  26 %
Segment margin14 %14 %14 %14 %

Sources of revenue
Wealth Management segment margins for the three and nine months ended September 30, 2019 were comparable to the prior periods.
Wealth Management revenue is derived from multiple sources. We track sources of revenue, primary drivers of each revenue source, and recurring revenue. In addition, we focus on several business and key financial metrics in evaluating the success of our business relationships, our resulting financial position, and operating performance.
A summary of our sources of revenue and business metrics is as follows:
Three months endedQTDSix months endedYTD
(In thousands, except percentages)June 30,ChangeJune 30,Change
Sources of RevenuePrimary Drivers20202019$20202019$
Financial professional-driven (1)Advisory- Advisory asset levels$66,303  $61,410  $4,893  $145,060  $101,167  $43,893  
Commission- Transactions
- Asset levels
- Product mix		39,836  48,068  (8,232) 90,416  85,228  5,188  
Other revenueAsset-based- Cash balances
- Interest rates
- Number of accounts
- Client asset levels		3,981  13,219  (9,238) 14,560  22,912  (8,352) 
Transaction and fee- Account activity
- Number of financial
professionals
- Number of clients
- Number of accounts		5,764  5,134  630  10,837  8,056  2,781  
Total revenue$115,884  $127,831  $(11,947) $260,873  $217,363  $43,510  
Total recurring revenue$100,004  $106,557  $(6,553) $219,259  $179,798  $39,461  
Recurring revenue rate86.3 %83.4 %84.0 %82.7 %
____________________________
Sources of revenue(1)Our “financial professionals” were formerly referred to as “advisors.”
(In thousands, except percentages)Three months ended September 30,Nine months ended September 30,
Sources of RevenuePrimary Drivers20192018Change20192018Change
Advisor-driven
Commission- Transactions
- Asset levels		$52,623  $41,015  28 %$137,851  $124,269  11 %
Advisory- Advisory asset levels75,579  41,443  82 %176,746  120,802  46 %
Other revenueAsset-based- Cash balances
- Interest rates
- Number of accounts
- Client asset levels		13,618  6,979  95 %36,530  21,457  70 %
Transaction and fee- Account activity
- Number of clients
- Number of advisors
- Number of accounts		3,608  2,450  47 %11,664  9,456  23 %
Total revenue$145,428  $91,887  58 %$362,791  $275,984  31 %
Total recurring revenue$121,304  $74,228  63 %$301,102  $222,559  35 %
Recurring revenue rate83.4 %80.8 %83.0 %80.6 %

Recurring revenue consists of advisory fees, trailing commissions, advisory fees, fees from cash sweep programs, and certain transaction and fee revenue, all as described further below in Commissionunder the headings “Advisory revenue,, Advisory” “Commission revenue,, Asset-based” “Asset-based revenue,,” and Transaction“Transaction and fee revenue,,” respectively. Certain recurring revenues are associated with asset balances and fluctuate depending on market values and current interest rates. Accordingly, our recurring revenue can be negatively impacted by adverse external market conditions. However, we believe recurring revenue is meaningful despite these fluctuations because it is not dependent upon transaction volumes or other activity-based revenues, which are more difficult to predict, particularly in declining or volatile markets.

Business metrics
(In thousands, except percentages and as otherwise indicated)September 30,
20192018Change
Total Client Assets$67,682,510  $46,413,409  46 %
Brokerage Assets$41,358,346  $32,897,081  26 %
Advisory Assets$26,324,164  $13,516,328  95 %
Percentage of Total Client Assets38.9 %29.1 %
Number of advisors (in ones)4,119  3,687  12 %
Advisor-driven revenue (three months ended) per advisor$31.1  $22.4  39 %
(In thousands, except percentages and as otherwise indicated)June 30,Change
20202019Amount%
Total client assets$68,519,998  $67,602,006  $917,992  1 %
Brokerage assets$41,964,610  $41,335,972  $628,638  2 %
Advisory assets$26,555,388  $26,266,034  $289,354  1 %
Advisory assets as a percentage of total client assets38.8 %38.9 %
Number of financial professionals (in ones) (1)3,862  4,225  (363) (9)%
Advisory and commission revenue per financial professional (1) (2)$27.5  $25.9  $1.6  6 %
____________________________

(1)Our “financial professionals” were formerly referred to as “advisors.”
(2)Calculation based on advisory and commission revenue for the three months ended June 30, 2020 and 2019, respectively.
Client assets.Total client assets ("total client assets") includesinclude assets that we hold directly or indirectly on behalf of clients under a safekeeping or custody arrangement or for which we provide administrative services for clients. To the extent that we provide more than one total client assets service for a client’s assets, the value of the asset is only counted once in the total amount of total client assets. Total client assets include advisory assets, non-advisory brokerage accounts,
Blucora, Inc. | Q2 2020 Form 10-Q 26

annuities, and mutual fund positions held directly with fund companies. These assets are not reported on the consolidated balance sheets.
22

Advisory assets ("advisory assets") includes externalinclude client assets for which we provide investment advisory and management services typically as a fiduciary under the Investment Advisers Act of 1940. Our compensation for providing such services is typically a fee based on the value of the advisory assets for each advisory client. These assets are not reported on the consolidated balance sheets.
Brokerage assets representsrepresent the difference between total client assets and advisory assets.
Approximately $20.0Total client assets increased $0.9 billion at June 30, 2020 compared to June 30, 2019 primarily due to favorable client reinvestment levels, partially offset by net client outflows.
At this time, we cannot predict with certainty the extent of the impact of the coronavirus pandemic and future financial market fluctuations on our future total client assets, approximately $11.4 billion ofand advisory assets and approximately 800 advisors were acquired from 1st Globalassets. However, as long the coronavirus continues to create volatility in the Acquisition.
Commission revenue:TheU.S. and global economy and uncertainty in financial markets, we may experience future declines in the amount of our total client assets. For more information on the risks associated with our Wealth Management segment generates two types of commissions: transaction-based sales commissions and trailing commissions. Transaction-based sales commissions, which occur when clients trade securities or purchase investment products, represent gross commissions generated by our financial advisors. The level of transaction-based sales commissions can vary from period-to-period based onbusiness, see Part II, Item 1A under the overall economic environment,heading, “Pandemics, including the recent coronavirus pandemic, could have a Material Adverse Effect.”
Financial professionals. In addition, the number of trading days in the reporting period, market volatility, interest rate fluctuations and investment activity of our financial advisors' clients. We earn trailing commissions (a commission or fee that is paid periodically over time) on certain mutual funds and variable annuities heldprofessionals decreased by clients. Trailing commissions are recurring in nature and are based on the market value of investment holdings in trail-eligible assets. Our commission revenue, by product category and by type of commission revenue, was as follows:

(In thousands, except percentages)Three months ended September 30,Nine months ended September 30,
 20192018Change20192018Change
By product category:
Mutual funds$24,026  $21,201  13 %$66,704  $66,494  — %
Variable annuities  17,973  13,033  38 %44,476  38,883  14 %
Insurance  5,344  3,910  37 %13,373  10,361  29 %
General securities  5,280  2,871  84 %13,298  8,531  56 %
Total commission revenue  $52,623  $41,015  28 %$137,851  $124,269  11 %
By type of commission:  
Sales-based  $23,195  $16,928  37 %$59,348  $51,192  16 %
Trailing  29,428  24,087  22 %78,503  73,077  7 %
Total commission revenue  $52,623  $41,015  28 %$137,851  $124,269  11 %

Three months ended September9% at June 30, 2020 compared to June 30, 2019, compared with three months ended September 30, 2018
Sales-based commission revenue increased approximately $6.3 million,the decrease primarily due to approximately $5.1 millionexpected attrition following the integration of fromHD Vest and 1st Global, and growth from alternative investments.
Trailing commission revenue increased approximately $5.3 million due to revenues from 1st Global.
Nine months ended September 30, 2019 compared with nine months ended September 30, 2018
Sales-based commission revenue increased approximately $8.2 million, primarily due to approximately $9.4 millionas well as the impact of sales-based commission revenue from 1st Global, partially offset by decreased activity in mutual funds.
Trailing commission revenue increased approximately $5.4 million, primarily due to approximately $9.5 million of revenues from 1st Global, partially offset by lower trailing commission revenues due to changes infinancial professionals leaving the market value of the underlying assets.wealth management business.
Advisory revenue:revenue. Advisory revenue primarily includes fees charged to clients in advisory accounts wherein which Avantax is the Registered Investment Advisor (“RIA”)RIA and is based on the value of advisory assets. Advisory fees are typically billed to clients quarterly, in advance, and are recognized as revenue ratably during the quarter. The value of the assets in an advisory account on the billing date determines the amount billed and, accordingly, the revenues earned in the following three-month period. The majority of our accounts are billed in advance using values as of the last business day of the prior calendar quarter.
23

The activity within our advisory assets was as follows:
(In thousands)Three months ended September 30,Nine months ended September 30,
 2019201820192018
Balance, beginning of the period$26,266,034  $12,947,193  $12,555,405  $12,530,165  
Net increase in new advisory assets  224,996  202,156  802,368  609,970  
Inflows from the Acquisition  —  —  11,397,301  —  
Market impact and other  (166,865) 366,979  1,569,091  376,193  
Balance, end of the period  $26,324,165  $13,516,328  $26,324,165  $13,516,328  
Advisory revenues  $75,579  $41,443  $176,746  $120,802  
Quarterly average fee rate  29 bps  32 bps  28 bps  32 bps  

Increases or decreases in advisory assets have a limited impact on advisory fee revenue in the period in which they occur. Rather, increases or decreases in advisory assets are a primary driver of future advisory fee revenue due to advisory fees being billed in advance. Advisory revenue for a particular quarter is predominately driven by the prior quarter-end advisory assets.
The activity within our advisory assets was as follows:
(In thousands)Three months ended June 30,Six months ended June 30,
 2020201920202019
Balance, beginning of the period$23,618,964  $13,988,189  $27,629,164  $12,555,405  
Net increase (decrease) in new advisory assets(284,024) 308,220  105,976  577,372  
Inflows from acquisitions—  11,397,301  —  11,397,301  
Market impact and other3,220,448  572,324  (1,179,752) 1,735,956  
Balance, end of the period$26,555,388  $26,266,034  $26,555,388  $26,266,034  
Advisory revenue$66,303  $61,410  $145,060  $101,167  
Average advisory fee rate28 bps28 bps57 bps60 bps
For the three months ended SeptemberJune 30, 2020 compared to the three months ended June 30, 2019, advisory revenue increased $4.9 million. For the netsix months ended June 30, 2020 compared to the six months ended June 30, 2019, advisory revenue increased $43.9 million. The increases in advisory revenues for the quarterly and year-to-date comparative periods were primarily due to an increase in new advisory assets was largely dueobtained in the 1st Global Acquisition.
Blucora, Inc. | Q2 2020 Form 10-Q 27

For the six months ended June 30, 2020, advisory asset levels decreased $4.0 billion during the first quarter of 2020 and then rebounded by $2.9 billion during the second quarter of 2020, with these asset level movements corresponding to the addition of new advisors. Forvolatility in the nine months ended September 30, 2019,broader financial markets. While the net increasedecrease in new advisory assets during the first quarter of 2020 had a minimal effect on advisory revenue for the first quarter of 2020, advisory revenue recognized for the second quarter of 2020 was largely duenegatively affected because such revenue was primarily based on the value of client assets within advisory accounts as of March 31, 2020. Our advisory revenue in future quarters will continue to be a function of ending advisory asset levels for the additionprevious quarter.
Commission revenue. The Wealth Management segment generates two types of new advisorscommissions: (1) transaction-based commissions and (2) trailing commissions. Transaction-based commissions, which occur when clients trade securities or purchase investment products, represent gross commissions generated by our financial professionals. The level of transaction-based commissions can vary from period-to-period based on the timingoverall economic environment, number of trading days in the Acquisition.reporting period, market volatility, interest rate fluctuations, and investment activity of our financial professionals’ clients. We earn trailing commissions (a commission or fee that is paid periodically over time) on certain mutual funds and variable annuities held by clients. Trailing commissions are recurring in nature and are based on the market value of investment holdings in trail-eligible assets. Our commission revenue, by product category and by type of commission revenue, was as follows:
(in thousands, except percentages)Three months endedQTDSix months endedYTD
June 30,ChangeJune 30,Change
 20202019$%20202019$%
By product category:
Mutual funds$19,312  $23,437  $(4,125) (18)%$45,212  $42,678  $2,534  6 %
Variable annuities14,604  15,145  (541) (4)%28,354  26,503  1,851  7 %
Insurance2,831  4,299  (1,468) (34)%8,064  8,029  35  — %
General securities3,089  5,187  (2,098) (40)%8,786  8,018  768  10 %
Total commission revenue$39,836  $48,068  $(8,232) (17)%$90,416  $85,228  $5,188  6 %
By type of commission:
Transaction-based$14,803  $20,469  $(5,666) (28)%$38,184  $36,153  $2,031  6 %
Trailing25,033  27,599  (2,566) (9)%52,232  49,075  3,157  6 %
Total commission revenue$39,836  $48,068  $(8,232) (17)%$90,416  $85,228  $5,188  6 %
For the three and nine months ended SeptemberJune 30, 2019, the changes in quarterly average fee rate is primarily due2020 compared to 1st Global.
Three months ended September 30, 2019 compared with three months ended September 30, 2018
The increase in advisory revenue of approximately $34.1 million (including approximately $29.6 million from 1st Global) is primarily due to the increase in the beginning-of-period advisory assets for the three months ended SeptemberJune 30, 2019, compared with three months ended September 30, 2018.
Nine months ended September 30, 2019 compared with nine months ended September 30, 2018
The increase in advisorytransaction-based commission revenue of approximately $55.9decreased $5.7 million (including approximately $47.1and trailing commission revenue decreased $2.6 million, from 1st Global) is primarily due to decreased trade volumes and suppressed client asset levels as a result of the increasefinancial market disruption and the coronavirus pandemic.
For the six months ended June 30, 2020 compared to the six months ended June 30, 2019, transaction-based commission revenue increased $2.0 million and trailing commission revenue increased $3.2 million, primarily due to incremental commission revenue from 1st Global, partially offset by decreased trade volumes and suppressed client asset levels as a result of the financial market disruption and the coronavirus pandemic.
We expect that the positive financial market movement in the beginning-of-period advisory assetssecond quarter of 2020 will aid in increasing trail-eligible brokerage asset balances and positively impact trailing commissions for the nine months ended September 30, 2019 compared with nine months ended September 30, 2018.third quarter of 2020, although prior downward financial market movements can have a lagging effect on certain trailing commissions generated in future periods. In addition, trailing commission revenue and transaction-based commission revenue remain susceptible to being adversely affected in future periods in which pandemic-influenced economic and market factors remain present.
Asset-based revenue:revenue. Asset-based revenue primarily includes fees from financial product manufacturer sponsorship programs, cash sweep programs and other asset-based revenues, primarily including margin revenues.
Three months ended September 30, 2019 compared withFor the three months ended SeptemberJune 30, 2018
Asset-based2020 compared to the three months ended June 30, 2019, asset-based revenue increased approximately $6.6decreased $9.2 million (including approximately $3.2primarily due to a $7.7 million from 1st Global), primarily from higherdecrease in cash sweep revenues following changesrevenue as a result of lower interest rates. In addition, revenue generated from fees from financial product manufacturer sponsorship programs decreased by $1.2 million.
Blucora, Inc. | Q2 2020 Form 10-Q 28

For the six months ended June 30, 2020 compared to the six months ended June 30, 2019, asset-based revenue decreased $8.4 million primarily due to a $6.5 million decrease in cash sweep revenue as a result of lower interest rates. In addition, revenue generated from fees from financial product manufacturer sponsorship program decreased by $1.4 million.
In March 2020, the Federal Reserve lowered its target range for the federal funds rate to 0.00-0.25%. As our cash sweep program, increases in interest rates, and higher asset balances.
Nine months ended September 30, 2019 compared with nine months ended September 30, 2018
Asset-based revenue increased approximately $15.1 million (including approximately $5.6 millionis based on a rate derived from 1st Global), primarily from higherthe federal funds rate, we expect lower cash sweep revenues following changesrevenue in future periods in which the federal funds rate is at reduced levels. In addition, due to the coronavirus pandemic, we expect to generate less fee revenue from financial product manufacturer sponsorship programs due to our cash sweep program, increasesdecreased ability to host events in interest rates, and higher asset balances.which our financial professionals can meet with product sponsors to learn about their investment products.
Transaction and fee revenue:revenue. Transaction and fee revenue primarily includes support fees charged to advisors,financial professionals, fees charged for executing certain transactions in client accounts, and other fees related to services provided and other account charges as generally outlined in agreements with financial advisors,professionals, clients, and financial institutions.
Three months ended September 30, 2019 compared withFor the three months ended SeptemberJune 30, 2018
Transaction2020 compared to the three months ended June 30, 2019, transaction and fee revenues increased approximately $1.2 million (including approximately $0.9 million of revenues from 1st Global), primarily from advisor fees.
Nine$0.6 million. For the six months ended SeptemberJune 30, 2019compared with nine2020 compared to the six months ended SeptemberJune 30, 2018
Transaction2019, transaction and fee revenues increased approximately $2.2 million (including approximately $1.4 million$2.8 million. These increases were primarily due to an increase in client fees and financial professional fees as a result of revenues fromthe 1st Global), primarily from advisor fees.
24

Global Acquisition.
Tax Preparation
(In thousands, except percentages)(In thousands, except percentages)Three months endedQTDSix months endedYTD
(In thousands, except percentages)Three months ended September 30,Nine months ended September 30,(In thousands, except percentages)June 30,ChangeJune 30,Change
20192018Change20192018Change 20202019$%20202019$%
RevenueRevenue$3,588  $3,498  3 %$205,733  $183,214  12 %Revenue$45,238  $65,909  $(20,671) (31)%$163,569  $202,145  $(38,576) (19)%
Operating income (loss) $(12,075) $(6,936) 74 %$108,565  $95,991  13 %
Operating incomeOperating income$6,659  $41,368  $(34,709) (84)%$44,412  $120,640  $(76,228) (63)%
Segment marginSegment margin(337)%(198)%53 %52 %Segment margin15 %63 %27 %60 %

Tax Preparation segment margins forFor the three months ended SeptemberJune 30, 2020 compared to the three months ended June 30, 2019, includedTax Preparation operating income decreased $34.7 million due to the following factors:
•Tax Preparation revenue decreased $20.7 million primarily due to an increase$18.3 million decrease in consumer revenues of approximately $1.0 million, offset by an immaterial adjustment to previously-recognized Professional Tax Preparation revenues, which did not have an impact on revenues for the nine months ended September 30, 2019.

Tax Preparation segment margins for the nine months ended September 30, 2019 were consistent with the prior period. We expect that Tax Preparation segment margin could be impacted in future periodsrevenue as a result of ourthe extension of the filing date for federal tax returns to July 15, 2020. This filing extension resulted in the shifting of a significant portion of Tax Preparation segment revenue that is usually earned in the first and second quarters of 2020 to the third quarter of 2020.
•Tax Preparation operating expenses increased investments$14.0 million primarily due to increased marketing spend that mainly resulted from the extension of the tax season.
For the six months ended June 30, 2020 compared to the six months ended June 30, 2019, Tax Preparation operating income decreased $76.2 million due to the following factors:
•Tax Preparation revenue decreased $38.6 million primarily due to a $38.4 million decrease in modernizing our technology platformsconsumer revenue due to drive the speed and efficiencyextension of our supporting technology.the federal tax filing deadline.
•Tax Preparation operating expenses increased $37.7 million primarily due to increased marketing spend as a result of incremental investment required in March due to weak performance through the first two months of the tax season, as well as increased marketing required due to the extended tax season.
Sources of revenue
Tax Preparation revenue is derived primarily from the sale of tax preparation digital services, ancillary services, packaged tax preparation software, and arrangements that may include a combination of these items. Ancillary services primarily include refund payment transfer and audit defense.
Three months ended September 30, 2019 compared with three months ended September 30, 2018
We classify Tax Preparation revenue into two different categories: consumer revenue and professional revenue. Consumer revenue represents Tax Preparation revenue derived from products sold to customers and businesses primarily for the preparation of individual or business tax returns. Professional revenue represents Tax
Blucora, Inc. | Q2 2020 Form 10-Q 29

Preparation revenue derived from products sold to tax return preparers who utilize our offerings to service end-user customers.
Revenue by category was comparableas follows:
(In thousands, except percentages)Three months endedQTDSix months endedYTD
June 30,ChangeJune 30,Change
 20202019$%20202019$%
Consumer$44,421  $62,686  $(18,265) (29)%$148,242  $186,628  $(38,386) (21)%
Professional817  3,223  (2,406) (75)%15,327  15,517  (190) (1)%
Total revenue$45,238  $65,909  $(20,671) (31)%$163,569  $202,145  $(38,576) (19)%
We measure the performance of our Tax Preparation business using three sets of non-financial metrics, which we consider to be important indicators of the performance of our Tax Preparation business and are especially relevant through the end of a completed tax season. These non-financial metrics include key performance indicators for our total Tax Preparation business, in addition to the prior period.
consumer and professional tax preparation portions of the Tax Preparation operating loss increased approximately $5.1 million duebusiness:
•We measure our total tax preparation customers using the total number of accepted federal tax e-files completed by both our consumer tax preparation customers and our professional tax preparer customers.
•We measure our consumer tax preparation customers using the number of accepted federal tax e-files made through our software and digital services.
•We measure our professional tax preparer customers using three metrics: (1) the number of accepted federal tax e-files made through our software, (2) the number of units sold, and (3) the number of e-files per unit sold.
Total, consumer, and professional tax preparation metrics were as follows:
(In thousands, except percentages and as otherwise indicated)Six months endedYear-to-date period ended
June 30,ChangeJuly 16,Change
20202019Units%2020 (1)2019 (1)Units%
Total e-files (2)4,595  5,095  (500) (10)%5,149  5,108  41  1 %
Consumer:
Consumer e-files (2)2,734  3,179  (445) (14)%3,113  3,184  (71) (2)%
Professional:
Professional e-files1,861  1,916  (55) (3)%2,036  1,924  112  6 %
Units sold (in ones)20,087  20,583  (496) (2)%20,207  20,596  (389) (2)%
Professional e-files per unit sold (in ones)92.6  93.1  (0.5) (1)%100.8  93.4  7.4  8 %
____________________________
(1)Tax season begins on the first day that the IRS begins accepting e-files and ends on filing deadline day plus one day. As a result of the coronavirus pandemic, the IRS extended the filing deadline for federal tax returns relating to the 2019 tax year to July 15, 2020. In order to provide comparable prior period data, we also provided e-file information for the equivalent period in 2019.
(2)We participate in the Free File Alliance that is part of an increase in operating expenses. The increase in Tax Preparation segment operating expenses wasIRS partnership that provides free electronic tax filing services to taxpayers meeting certain income-based guidelines. Free File Alliance e-files are included within total e-files and consumer e-files above.
For the six months ended June 30, 2020 compared to the six months ended June 30, 2019, total e-files, consumer e-files, and professional e-files decreased primarily due to anthe extension of the filing date for federal tax returns to July 15, 2020.
For the year-to-date period ended July 16, 2020 compared to the year-to-date period ended July 16, 2019, total e-files increased primarily due to a 6% increase in personnel costs supporting product development, an increase in software development expenses and higher sales and marketing consulting efforts,professional e-files, partially offset by reduced media spend.a 2% decrease in consumer e-files.
Nine months ended September
Blucora, Inc. | Q2 2020 Form 10-Q 30 2019 compared with nine months ended September 30, 2018

Tax Preparation revenue increased approximately $22.5 million, primarily due to price increases and a shift in product mix toward higher-priced products.
Tax Preparation operating income increased approximately $12.6 million due to an increase in revenues of approximately $22.5 million, offset by a $10.3 million increase in operating expenses. The increase in Tax Preparation segment operating expenses was primarily due to an increase in personnel costs supporting product development, an increase in software development expenses and higher sales and marketing consulting efforts, partially offset by reduced media spend.
Corporate-Level Activity
(In thousands)Three months ended September 30,Nine months ended September 30,
 20192018Change20192018Change
Operating expenses$6,476  $4,572  $1,904  $19,802  $14,351  $5,451  
Stock-based compensation4,639  2,874  1,765  11,164  9,559  1,605  
Acquisition and integration costs6,759  —  6,759  17,739  —  17,739  
Depreciation1,811  930  881  4,783  4,056  727  
Amortization of acquired intangible assets10,082  8,271  1,811  27,295  25,483  1,812  
Impairment of intangible asset50,900  —  50,900  50,900  —  50,900  
Restructuring—  —  —  —  291  (291) 
Total corporate-level activity$80,667  $16,647  $64,020  $131,683  $53,740  $77,943  

Certain corporate-level activity, including certain general and administrative costs (including(such as personnel and overhead costs), stock-based compensation, acquisition and integration costs, executive transition costs, headquarters relocation costs, depreciation, amortization of acquired intangible assets, intangible asset impairments and restructuringimpairment of goodwill, is not allocated to our segments.
Three months ended September 30, 2019 compared withCorporate level activity by category was as follows:

Three months endedQTDSix months endedYTD
(In thousands)June 30,ChangeJune 30,Change
 20202019$%20202019$%
General and administrative expenses$5,810  $6,221  $(411) (7)%$12,826  $13,326  $(500) (4)%
Stock-based compensation3,904  4,082  (178) (4)%2,703  6,525  (3,822) (59)%
Acquisition and integration costs2,824  9,183  (6,359) (69)%8,506  10,980  (2,474) (23)%
Executive transition costs636  —  636  N/A9,820  —  9,820  N/A
Headquarters relocation costs737  —  737  N/A1,453  —  1,453  N/A
Depreciation2,412  1,662  750  45 %4,832  2,972  1,860  63 %
Amortization of acquired intangible assets6,673  9,169  (2,496) (27)%14,421  17,213  (2,792) (16)%
Impairment of goodwill—  —  —  N/A270,625  —  270,625  N/A
Total corporate-level activity$22,996  $30,317  $(7,321) (24)%$325,186  $51,016  $274,170  537 %
For the three months ended SeptemberJune 30, 2018
Operating2020 compared to the three months ended June 30, 2019, corporate level expenses included in corporate-level activity increaseddecreased $7.3 million primarily due to increases in headcount.the following factors:
25

•
Stock-based compensation increased primarily due to activity within our Wealth Management business and the timing of forfeitures within our Tax Preparation business in the prior period.
Acquisition and integration costs in 2019 are relateddecreased $6.4 million due to reduced costs recognized for the HKFS Acquisition and the continued integration of 1st Global during the three months ended June 30, 2020 compared to the Acquisition.costs recognized for the 1st Global Acquisition during the three months ended June 30, 2019.
Depreciation expense increased•Amortization of acquired intangible assets decreased $2.5 million primarily due to TaxAct customer relationship intangible assets that completed their useful lives and ceased amortizing in early 2020, partially offset by an increase in amortization due to intangibles acquired in the impact from 1st Global and internally-developed software fixed assets capitalized inAcquisition.
For the fourth quarter of 2018.
Amortization expensesix months ended June 30, 2020 compared to the six months ended June 30, 2019, corporate level expenses increased $274.2 million primarily due to the Acquisition.following factors:
Impairment•For the six months ended June 30, 2020, we recognized goodwill impairment of intangible asset relates to an impairment charge of approximately $50.9$270.6 million related to our Wealth Management reporting unit. For additional information, see “Item 1. Financial Statements—Note 5.”
•Executive transition costs of $9.8 million were recognized for the HD Vest trade name intangible asset following the Rebranding.
Ninesix months ended SeptemberJune 30, 2019 compared with nine months ended September 30, 2018
Operating expenses included in corporate-level activity increased primarily due to increases in headcount.
Stock-based compensation increased primarily2020 due to the impactdeparture of certain Company executives.
Partially offsetting this increase:
•Stock-based compensation decreased $3.8 million due to stock award forfeitures resulting from executive departures in the first quarter of 2020.
•Amortization of acquired intangibles decreased $2.8 million due to TaxAct customer relationship intangible assets that completed their useful lives and ceased amortizing in early 2020, partially offset by an increase in amortization due to intangibles acquired in the 1st Global and the timing of forfeitures in our Wealth Management business in the current period and in our Tax Preparation business in the prior period.Acquisition.
•Acquisition and integration costs in 2019 are relateddecreased $2.5 million due to reduced costs recognized for the HKFS Acquisition and the continued integration of 1st Global during the six months ended June 30, 2020 compared to the Acquisition.
Depreciation expense increased due tocosts recognized for the impact from 1st Global and internally-developed software fixed assets capitalized inAcquisition during the fourth quarter of 2018.six months ended June 30, 2019.
Amortization expense increased primarily due to the Acquisition.
Impairment of intangible asset relates to an impairment charge of approximately $50.9 million related to the HD Vest trade name intangible asset following the Rebranding.

26Blucora, Inc. | Q2 2020 Form 10-Q 31

OPERATING EXPENSES
Cost of Revenue
(In thousands, except percentages)(In thousands, except percentages)Three months endedQTDSix months endedYTD
(In thousands, except percentages)Three months ended September 30,Nine months ended September 30,(In thousands, except percentages)June 30,ChangeJune 30,Change
20192018Change20192018Change 20202019$%20202019$%
Wealth Management services cost of revenueWealth Management services cost of revenue$102,030  $62,313  $39,717  $250,881  $187,526  $63,355  Wealth Management services cost of revenue$83,868  $87,477  $(3,609) (4)%$186,210  $148,851  $37,359  25 %
Tax Preparation services cost of revenueTax Preparation services cost of revenue1,633  1,370  263  8,983  8,182  801  Tax Preparation services cost of revenue3,054  3,149  (95) (3)%7,067  7,350  (283) (4)%
Amortization of acquired technology—  —  —  —  99  (99) 
Total cost of revenueTotal cost of revenue$103,663  $63,683  $39,980  $259,864  $195,807  $64,057  Total cost of revenue$86,922  $90,626  $(3,704) (4)%$193,277  $156,201  $37,076  24 %
Percentage of revenuePercentage of revenue70 %67 %46 %43 %Percentage of revenue54 %47 %46 %37 %

We record the cost of revenue for sales of services when the related revenue is recognized. Cost of revenue consists of costs related to our Wealth Management and Tax Preparation businesses, which include commissions and advisory fees paid to financial advisors,professionals, third-party costs, and costs associated with the technical support team and the operation of our data centers. Data center costs include personnel expenses, the cost of temporary help and contractors, professional services fees, software support and maintenance, bandwidth and hosting costs, and depreciation. Cost of revenue also includesdepreciation (including depreciation related to TaxAct software development costs).
For the amortization of acquired technology.
Three months ended September 30, 2019 compared with three months ended SeptemberJune 30, 20182020 compared to the three months ended June 30, 2019, cost of revenue decreased $3.7 million primarily due to a decrease in commissions paid to our financial professionals. The reduced commissions paid to our financial professionals and recognized as cost of revenue are a function of lower transactions and suppressed client asset balances and represent a portion of the commissions and advisory fees we recognize as revenue. We expect cost of revenue for the third quarter 2020 and future periods to align with our expectations of advisory and commission revenue.
Wealth Management servicesFor the six months ended June 30, 2020 compared to the six months ended June 30, 2019, cost of revenue increased $37.1 million primarily due to an increase in commissions and advisory fees paid to our financial advisors (including approximately $30.9 million of commissions paid tothe 1st Global advisors).Acquisition.
In future periods, we expect increased Tax Preparation services cost of revenue increased primarily due to an increase in data center costs.
Nine months ended September 30, 2019 compared with nine months ended September 30, 2018
Wealth Management services cost of revenue increased primarily duedepreciation related to an increase in commissions and advisory fees paid to our financial advisors (including approximately $51.3 million of commissions paid to 1st Global advisors).
Tax Preparation services cost of revenue increased primarily due to an increase in data center costs.additional capitalized software costs for TaxAct.
Engineering and Technology
(In thousands, except percentages)(In thousands, except percentages)Three months endedQTDSix months endedYTD
(In thousands, except percentages)Three months ended September 30,Nine months ended September 30,(In thousands, except percentages)June 30,ChangeJune 30,Change
20192018Change20192018Change 20202019$%20202019$%
Engineering and technologyEngineering and technology$8,635  $4,246  $4,389  $22,323  $14,225  $8,098  Engineering and technology$7,377  $7,159  $218  3 %$15,892  $13,688  $2,204  16 %
Percentage of revenuePercentage of revenue6 %4 %4 %3 %Percentage of revenue5 %4 %4 %3 %

Engineering and technology expenses are associated with the research, development, support, and ongoing enhancements of our offerings, which include personnel expenses, the cost of temporary help and contractors, software support and maintenance, bandwidth and hosting, and professional services fees.
Three months ended September 30, 2019 compared with three months ended September 30, 2018
Engineering and technology expenses do not include the costs of computer hardware and software that are capitalized, depreciated over their useful lives, and recognized on the condensed consolidated statements of comprehensive income as either “cost of revenue” or “depreciation.” For more information, see the “Cost of Revenue” and “Depreciation and Amortization of Acquired Intangible Assets” sections contained within this discussion of “Operating Expenses.”
For the three months ended June 30, 2020 compared to the three months ended June 30, 2019, engineering and technology expenses were relatively consistent.
For the six months ended June 30, 2020 compared to the six months ended June 30, 2019, engineering and technology expenses increased $2.2 million, primarily due to higherincreased headcount and software expensesconsulting fees in our Tax Preparation business, and approximately $1.0 million of costs from 1st Global.
Nine months ended September 30, 2019 compared with nine months ended September 30, 2018
Engineering and technology expenses increased primarily due to higher headcount and consulting expenses in our Tax Preparation business, and approximately $1.6 million of costs from 1st Global, partially offset by a decrease in costs related to our 2018 clearing firm conversion.
business.
27Blucora, Inc. | Q2 2020 Form 10-Q 32

Sales and Marketing
(In thousands, except percentages)Three months ended September 30,Nine months ended September 30,
 20192018Change20192018Change
Sales and marketing$19,976  $15,675  $4,301  $104,804  $94,719  $10,085  
Percentage of revenue13 %16 %18 %21 %

(In thousands, except percentages)Three months endedQTDSix months endedYTD
June 30,ChangeJune 30,Change
 20202019$%20202019$%
Sales and marketing$40,057  $29,256  $10,801  37 %$119,767  $84,828  $34,939  41 %
Percentage of revenue25 %15 %28 %20 %
Sales and marketing expenses primarily consist principally of marketing expenses associated with our Tax Preparation business (including expenses related to marketing agencies and media companies) and our Wealth Management business, personnel expenses, and the cost of temporary help and contractors, as well as marketing expenses associated with our Wealth Management business and Tax Preparation business, and back office processing support expenses associated withfor our Wealth Management business.
Three months ended September 30, 2019 compared withFor the three months ended SeptemberJune 30, 2018
Sales2020 compared to the three months ended June 30, 2019, sales and marketing expenses increased $10.8 million. For the six months ended June 30, 2020 compared to the six months ended June 30, 2019, sales and marketing expenses increased $34.9 million. These increases were primarily due to higher expenses in our Wealth Management business (including approximately $5.3 million ofincreased advertising costs from 1st Global), and higher consulting efforts and headcount in our Tax Preparation business partially offset by reduced media spendduring the tax season.
In addition, we expect elevated sales and marketing costs in our Tax Preparation business and a decrease in costs related to our 2018 clearing firm conversion.
Nine months ended September 30, 2019 compared with nine months ended September 30, 2018
Sales and marketing expenses increased primarilythe third quarter of 2020 due to higher expenses in our Wealth Management business (including approximately $8.6 million of costs from 1st Global), and higher consulting efforts and headcount in our Tax Preparation business, partially offset by reduced media spend in our Tax Preparation business, a decrease in costs related to our 2018 clearing firm conversion and lower stock-based compensation costs.the extended tax season.
General and Administrative
(In thousands, except percentages)Three months ended September 30,Nine months ended September 30,
 20192018Change20192018Change
General and administrative$19,642  $13,404  $6,238  $55,721  $43,895  $11,826  
Percentage of revenue13 %14 %10 %10 %

(In thousands, except percentages)Three months endedQTDSix months endedYTD
June 30,ChangeJune 30,Change
 20202019$%20202019$%
General and administrative$20,200  $19,002  $1,198  6 %44,928  36,079  $8,849  25 %
Percentage of revenue13 %10 %11 %9 %
General and administrative ("“G&A"&A”) expenses primarily consist primarily of personnel expenses, the cost of temporary help and contractors, professional services fees, general business development and management expenses, occupancy and general office expenses, business taxes, and insurance expenses.
Three months ended September 30, 2019 compared withFor the three months ended SeptemberJune 30, 2018
2020 compared to the three months ended June 30, 2019, G&A expenses increased $1.2 million primarily due to an increase in personnel costs primarily related to increases in headcount and increases in stock-based compensation$0.7 million of headquarters relocation costs and approximately $4.0$0.6 million of executive transition costs that were recognized in the second quarter of 2020. The headquarters relocation costs relate to the process of moving from 1st Global.our Dallas and Irving offices to our new headquarters, and the executive transition costs were due to the departure of certain Company executives.
NineFor the six months ended SeptemberJune 30, 2020 compared to the six months ended June 30, 2019, compared with nine months ended September 30, 2018
G&A expenses increased $8.8 million primarily due to an increase in personnel costs primarily related to increases in headcount and increases in stock-based compensation, and approximately $8.0$9.8 million of executive transition costs from 1st Global,and $1.5 million of headquarters relocation costs that were recognized for the six months ended June 30, 2020, partially offset by a decreasereduced stock-based compensation expense due to stock award forfeitures resulting from executive departures in prior period consulting2020.
We have not experienced any material increases in G&A expenses primarily relateddue to strategic initiatives.the coronavirus pandemic for the three and six months ended June 30, 2020.
Acquisition and Integration
(In thousands, except percentages)(In thousands, except percentages)Three months ended September 30, 2019Nine months ended September 30, 2019(In thousands, except percentages)Three months endedQTDSix months endedYTD
(In thousands, except percentages)June 30,ChangeJune 30,Change
20202019$%20202019$%
Employee-related expensesEmployee-related expenses$1,504  $4,334  Employee-related expenses$232  $2,613  $(2,381) (91)%$1,062  $2,830  $(1,768) (62)%
Professional servicesProfessional services4,207  11,765  Professional services2,356  5,978  (3,622) (61)%6,542  7,558  (1,016) (13)%
Other expensesOther expenses1,048  1,640  Other expenses236  592  (356) (60)%902  592  310  52 %
TotalTotal$6,759  $17,739  Total$2,824  $9,183  $(6,359) (69)%$8,506  $10,980  $(2,474) (23)%
Percentage of revenuePercentage of revenue5 %3 %Percentage of revenue2 %5 %2 %3 %
Acquisition and integration expenses are relatedprimarily relate to the 1st Global Acquisition and primarilyHKFS Acquisition and consist of employee-related expenses, professional services fees, and other expenses, which primarily includes insurance expenses.
28Blucora, Inc. | Q2 2020 Form 10-Q 33

For the three months ended June 30, 2020, acquisition and integration expenses included $1.7 million related to the 1st Global Acquisition and $1.1 million related to the HKFS acquisition. For the three months ended June 30, 2019, acquisition and integration expenses resulted from the 1st Global Acquisition.
For the six months ended June 30, 2020, acquisition and integration expenses included $4.7 million related to the 1st Global Acquisition and $3.8 million related to the HKFS Acquisition. For the six months ended June 30, 2019, acquisition and integration expenses resulted from the 1st Global Acquisition.
Depreciation and Amortization of Acquired Intangible Assets
(In thousands, except percentages)Three months ended September 30,Nine months ended September 30,
 20192018Change20192018Change
Depreciation$1,470  $798  $672  $3,846  $3,706  $140  
Amortization of acquired intangible assets10,082  8,271  1,811  27,295  25,384  1,911  
Total$11,552  $9,069  $2,483  $31,141  $29,090  $2,051  
Percentage of revenue8 %10 %5 %6 %

(In thousands, except percentages)Three months endedQTDSix months endedYTD
June 30,ChangeJune 30,Change
 20202019$%20202019$%
Depreciation$1,675  $1,315  $360  27 %$3,471  $2,376  $1,095  46 %
Amortization of acquired intangible assets6,673  9,169  (2,496) (27)%14,421  17,213  (2,792) (16)%
Total$8,348  $10,484  $(2,136) (20)%$17,892  $19,589  $(1,697) (9)%
Percentage of revenue5 %5 %4 %5 %
Depreciation of property and equipment includes depreciation of computer equipment and software, office equipment and furniture, and leasehold improvements not recognized in cost of revenue.improvements. Amortization of acquired intangible assets primarily includes the amortization of customer, advisorclient, financial professional, and sponsor relationships, which are amortized over their estimated lives. A portion of
For the three months ended June 30, 2020 compared to the three months ended June 30, 2019, depreciation and amortization is includedexpense decreased $2.1 million primarily due to TaxAct customer relationship intangible assets that completed their useful lives and ceased amortizing in segment operating expenses.early 2020, partially offset by an increase in amortization due to intangibles acquired in the 1st Global Acquisition.
ThreeFor the six months ended SeptemberJune 30, 2020 compared to the six months ended June 30, 2019, compared withdepreciation and amortization expense decreased $1.7 million primarily due to TaxAct customer relationship intangible assets that completed their useful lives and ceased amortizing in early 2020, partially offset by an increase in amortization due to intangibles acquired in the 1st Global Acquisition, as well as an increase in depreciation resulting from additional depreciable assets obtained in the 1st Global Acquisition and additional internal-use software put into service.
In future periods, we expect increased depreciation related to property and equipment put into service at our new headquarters in July 2020.
Impairment of Goodwill
(In thousands, except percentages)Three months endedQTDSix months endedYTD
June 30,ChangeJune 30,Change
 20202019$%20202019$%
Impairment of goodwill$—  $—  $—  N/A270,625  —  $270,625  N/A
Percentage of revenue— %— %64 %— %
For the six months ended June 30, 2020, we recognized goodwill impairment of $270.6 million related to our Wealth Management reporting unit. For additional information, see “Item 1. Financial Statements—Note 5.”
Blucora, Inc. | Q2 2020 Form 10-Q 34

OTHER LOSS, NET
Three months endedQTDSix months endedYTD
(In thousands)June 30,ChangeJune 30,Change
20202019$%20202019$%
Interest expense$4,840  $4,770  $70  1 %$10,156  $8,546  $1,610  19 %
Amortization of debt issuance costs331  375  (44) (12)%644  547  97  18 %
Accretion of debt discounts70  85  (15) (18)%138  123  15  12 %
Total interest expense5,241  5,230  11  — %10,938  9,216  1,722  19 %
Interest income(11) (149) 138  (93)%(25) (289) 264  (91)%
Other58  37  21  57 %510  149  361  242 %
Other loss, net$5,288  $5,118  $170  3 %$11,423  $9,076  $2,347  26 %
For the three months ended SeptemberJune 30, 20182020 compared to the three months ended June 30, 2019, other loss, net, was relatively consistent.
Depreciation and amortization expenseFor the six months ended June 30, 2020 compared to the six months ended June 30, 2019, other loss, net, increased $2.3 million primarily due to the impact of the Acquisition.
Nine months ended September 30, 2019 compared with nine months ended September 30, 2018
Depreciation expense was comparable to the prior period.
Amortization expense increased primarily due to the impact of the Acquisition.
Other Loss, Net
(In thousands)Three months ended September 30,Nine months ended September 30,
20192018Change20192018Change
Interest income$(52) $(119) $67  $(341) $(217) $(124) 
Interest expense5,469  3,744  1,725  14,015  11,772  2,243  
Amortization of debt issuance costs301  172  129  848  659  189  
Accretion of debt discounts66  38  28  189  125  64  
Loss on debt extinguishment  —  —  —  —  1,534  (1,534) 
Gain on sale of a business(3,256) —  (3,256) (3,256) —  (3,256) 
Other78  28  50  227  (2,023) 2,250  
Other loss, net  $2,606  $3,863  $(1,257) $11,682  $11,850  $(168) 

Three months ended September 30, 2019 compared with three months ended September 30, 2018
The$1.7 million increase in interest expense relates tolargely resulting from higher outstanding debt balances as a result of athe $125.0 million increase in the term loanTerm Loan under the Blucora senior secured credit facilities (as defined below) Senior Secured Credit Facility in the second quarter of 2019.2019, in addition to incremental borrowings under the Revolver during the six months ended June 30, 2020.
InWe expect interest expense for the third quarter of 2019 we had a gain2020 and going forward to increase due to the $175.0 million increase to the Term Loan that was effective on the sale of SimpleTax.
Nine months ended September 30, 2019 compared with nine months ended September 30, 2018July 1, 2020.
The increaseSenior Secured Credit Facility, including the Term Loan and the Revolver thereunder, are described in interest expense relates to higher outstanding debt balancesmore detail under as a result of a“Liquidity and Capital Resources” $125.0 million increase in the term loan under the Blucora senior secured credit facilities in the second quarter of 2019. In 2018 we had a loss on debt extinguishment related to debt prepayments.below.
In the third quarter of 2019 we had gain on the sale of SimpleTax, and in the second quarter of 2018 we had a gain on the sale of an investment.INCOME TAXES
Income Taxes
(In thousands, except percentages)Three months endedQTDSix months endedYTD
June 30,ChangeJune 30,Change
 20202019$%20202019$%
Income tax benefit (expense)$59,539  $8,124  $51,415  633 %$(7,981) $4,139  $(12,120) (293)%
WeThe Company recorded income tax benefit of $12.3$59.5 million and $16.5income tax expense of $8.0 million infor the three and ninesix months ended SeptemberJune 30, 2019,2020, respectively. OurThe Company's effective income tax rate for the three and six months ended June 30, 2020 differed from the 21% statutory rate in 2019, primarily due to expiring net operating loss tax benefits in the current year, an adjustment to the valuation allowance against the deferred tax assets for net operating losses expected to expire in future years of $14.7 million, and non-deductible officer compensation expense. The goodwill impairment charge of $270.6 million did not have an impact on the estimated annual effective income tax rate.
The Company recorded income tax benefits of $8.1 million and $4.1 million for the three and six months ended June 30, 2019, respectively. Income taxes for the three and six months ended June 30, 2019 differed from the 21% statutory rate, primarily due to excess tax benefits related to stock-based compensation and the release of valuation allowances, offset by the effect of state income taxes, non-deductible compensation, and acquisition costs. InAs part of the three months ended September 30, 2019,1st Global Acquisition, we recorded a$78.2 million of intangible assets that resulted in an $11.6 million discrete benefitchange in the valuation allowance as intangible assets are not amortizable for tax purposes.
On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”). Intended to provide economic relief to those impacted by the coronavirus pandemic, the CARES Act includes provisions, among others, addressing refunds of $10.6 million primarily relatedalternative minimum tax (“AMT”) credits, temporary modifications to the HD Vest trade name impairmentlimitations placed on the tax deductibility of net interest expenses, and impacts associated withtechnical amendments for qualified improvement property (“QIP”). Additionally, the Acquisition.
CARES Act, in an effort to enhance liquidity for businesses, provides for refundable employee retention tax credits and the deferral of the employer-paid portion of social security taxes.
29Blucora, Inc. | Q2 2020 Form 10-Q 35

We recorded income tax benefit of $0.8 million and expense of $2.1 millionexpect that we will be able to utilize the CARES Act provisions in the three and nine months ended September 30, 2018, respectively. Our effective income tax rate differed from the 21% statutory rate in 2018 primarily duefollowing ways:
•The provision permitting an adjustment to the releaseAMT credit carryforward will have an immediate effect by allowing us to recover the remaining $5.5 million AMT receivable in 2020.
•The adjustments made to the Internal Revenue Code §163(j) limiting the deduction for business interest expense will allow a 50% limitation (rather than the previous 30% limitation) for taxable years beginning in 2019 and 2020. Furthermore, we may use our adjusted taxable income for tax year 2019 when calculating our interest limitation for tax year 2020.
•The QIP technical correction may allow us to claim bonus tax depreciation on certain building improvements.
•The deferral of valuation allowances and the effectemployer-paid portion of state income taxes.
Income tax benefitsocial security taxes will result in the deferral of $2.6 million of employer social security taxes for the three and nine months ended September 30, 2019 differed from the comparable prior period, primarily due to the releaseremainder of valuation allowances, offset by non-deductible acquisition costs. In the nine months ended September 30, 2019, our discrete benefit of $16.3 million primarily related to the HD Vest trade name impairment and impacts associated with the Acquisition.2020.

30Blucora, Inc. | Q2 2020 Form 10-Q 36

NON-GAAP FINANCIAL MEASURES
Adjusted EBITDA:EBITDA
We define Adjusted EBITDA as net income (loss) attributable to Blucora, Inc., determined in accordance with GAAP, excluding the effects of stock-based compensation, depreciation and amortization of acquired intangible assets, restructuring, other loss, net, the impact of noncontrolling interests, acquisition and integration costs, impairment of goodwill, executive transition costs, headquarters relocation costs, and income tax (benefit) expenseexpense. Acquisition and integration costs primarily relate to the 1st Global Acquisition and the HKFS Acquisition. Impairment of goodwill relates to the impairment of an intangible asset. Restructuringour Wealth Management reporting unit goodwill that was recognized in the first quarter of 2020. Executive transition costs relate to the relocationdeparture of our corporate headquarters that was completedcertain Company executives in 2018. Acquisition and integrationthe first quarter of 2020. Headquarters relocation costs relate to the Acquisition.process of moving from our Dallas and Irving offices to our new headquarters.
We believe that Adjusted EBITDA provides meaningful supplemental information regarding our performance. We use this non-GAAP financial measure for internal management and compensation purposes, when publicly providing guidance on possible future results, and as a means to evaluate period-to-period comparisons. We believe that Adjusted EBITDA is a common measure used by investors and analysts to evaluate our performance, that it provides a more complete understanding of the results of operations and trends affecting our business when viewed together with GAAP results, and that management and investors benefit from referring to this non-GAAP financial measure. Items comprisingexcluded from Adjusted EBITDA are significant and necessary components to the operations of our business and, therefore, Adjusted EBITDA should be considered as a supplement to, and not as a substitute for or superior to, GAAP net income (loss). Other companies may calculate Adjusted EBITDA differently and, therefore, our Adjusted EBITDA may not be comparable to similarly titled measures of other companies.
A reconciliation of our Adjusted EBITDA to net income (loss) attributable to Blucora, Inc., which we believe to be the most comparable GAAP measure, is presented below:
(In thousands)(In thousands)Three months ended September 30,Nine months ended September 30,(In thousands)Three months ended June 30,Six months ended June 30,
2019201820192018 2020201920202019
Net income (loss) attributable to Blucora, Inc.Net income (loss) attributable to Blucora, Inc.$(62,386) $(13,964) $30,820  $66,615  Net income (loss) attributable to Blucora, Inc.$49,645  $31,036  $(265,849) $93,206  
Stock-based compensationStock-based compensation4,639  2,874  11,164  9,559  Stock-based compensation3,904  4,082  2,703  6,525  
Depreciation and amortization of acquired intangible assetsDepreciation and amortization of acquired intangible assets11,893  9,201  32,078  29,539  Depreciation and amortization of acquired intangible assets9,085  10,831  19,253  20,185  
Restructuring—  —  —  291  
Other loss, netOther loss, net2,606  3,863  11,682  11,850  Other loss, net5,288  5,118  11,423  9,076  
Net income attributable to noncontrolling interests—  227  —  654  
Acquisition and integration costs Acquisition and integration costs  6,759  —  17,739  —  Acquisition and integration costs2,824  9,183  8,506  10,980  
Impairment of goodwillImpairment of goodwill—  —  270,625  —  
Executive transition costsExecutive transition costs636  —  9,820  —  
Headquarters relocation costsHeadquarters relocation costs737  —  1,453  —  
Income tax (benefit) expenseIncome tax (benefit) expense(12,331) (818) (16,470) 2,052  Income tax (benefit) expense(59,539) (8,124) 7,981  (4,139) 
Impairment of intangible asset50,900  $—  50,900  —  
Adjusted EBITDAAdjusted EBITDA$2,080  $1,383  $137,913  $120,560  Adjusted EBITDA$12,580  $52,126  $65,915  $135,833  

Three months ended September 30, 2019 compared with three months ended September 30, 2018
The increase in Adjusted EBITDA was primarily due to an increase in segment operating income of $7.7 million related to our Wealth Management segment, offset by an increase in segment operating loss of $5.1 million related to our Tax Preparation segment and an increase in corporate operating expenses of $1.9 million.
Nine months ended September 30, 2019 compared with nine months ended September 30, 2018
The increase in Adjusted EBITDA was primarily due to an increase in segment operating income of $12.6 million related to our Tax Preparation segment and an increase in segment operating income of $10.2 million related to our Wealth Management segment, offset by an increase in corporate operating expenses of $5.5 million.
Non-GAAP net income (loss):and non-GAAP net income per share
We define non-GAAP net income (loss) as net income (loss) attributable to Blucora, Inc., determined in accordance with GAAP, excluding the effects of stock-based compensation, amortization of acquired intangible assets, the impairment of an intangible asset, gain on the sale of a business, acquisition and integration costs, (described further under Adjusted EBITDA above), restructuringimpairment of goodwill, executive transition costs, (described further under Adjusted EBITDA above), the impact of noncontrolling interests,headquarters relocation costs, the related cash tax impact of those adjustments, and non-cash income taxes.tax (benefit) expense. We exclude the non-cash portion of income taxestax expense because of our ability to offset a substantial portion of our cash tax liabilities by using deferred tax assets, which primarily consist of U.S. federal net operating losses. The majority of these net operating losses will expire, if unutilized, between 2020 and 2024.
Non-GAAP net income (loss) per share: We define non-GAAP net income (loss) per share as non-GAAP net income (loss) divided by weighted average diluted share count.
We believe that non-GAAP net income (loss) and non-GAAP net income (loss) per share provide meaningful supplemental information to management, investors, and analysts regarding our performance and the valuation of our business
31

by excluding items in the statement of operations that we do not consider part of our ongoing operations or have not been, or are not expected to be, settled in cash. Additionally, we believe that non-GAAP net income (loss) and non-GAAP net income (loss) per share are common measures used by investors and analysts to evaluate our performance and the valuation of our business. Non-GAAP net income (loss) and non-GAAP net income (loss) per share should be evaluated in light of our financial results prepared in accordance with GAAP and should be considered as a supplement to, and not as
Blucora, Inc. | Q2 2020 Form 10-Q 37

a substitute for or superior to, GAAP net income (loss) and net income (loss) per share. Other companies may calculate non-GAAP net income (loss) and non-GAAP net income (loss) per share differently, and, therefore, our non-GAAP net income (loss) and non-GAAP net income (loss) per share may not be comparable to similarly titled measures of other companies.
A reconciliation of our non-GAAP net income (loss)and non-GAAP net income per share to net income (loss) attributable to Blucora, Inc. and non-GAAP net income (loss) per share attributable to net income (loss) per share,Blucora, Inc., respectively, which we believe to be the most comparable GAAP measures, is presented below:
(In thousands, except per share amounts)(In thousands, except per share amounts)Three months ended September 30,Nine months ended September 30,(In thousands, except per share amounts)Three months ended June 30,Six months ended June 30,
2019201820192018 2020201920202019
Net income (loss) attributable to Blucora, Inc.Net income (loss) attributable to Blucora, Inc.$(62,386) $(13,964) $30,820  $66,615  Net income (loss) attributable to Blucora, Inc.$49,645  $31,036  $(265,849) $93,206  
Stock-based compensationStock-based compensation4,639  2,874  11,164  9,559  Stock-based compensation3,904  4,082  2,703  6,525  
Amortization of acquired intangible assetsAmortization of acquired intangible assets10,082  8,271  27,295  25,483  Amortization of acquired intangible assets6,673  9,169  14,421  17,213  
Impairment of intangible asset50,900  —  50,900  —  
Gain on the sale of a business  (3,256) —  (3,256) —  
Acquisition and integration costsAcquisition and integration costs6,759  —  17,739  —  Acquisition and integration costs2,824  9,183  8,506  10,980  
Restructuring—  —  —  291  
Impact of noncontrolling interests  —  227  —  654  
Impairment of goodwillImpairment of goodwill—  —  270,625  —  
Executive transition costsExecutive transition costs636  —  9,820  —  
Headquarters relocation costsHeadquarters relocation costs737  —  1,453  —  
Cash tax impact of adjustments to GAAP net incomeCash tax impact of adjustments to GAAP net income(710) (505) (1,892) (1,721) Cash tax impact of adjustments to GAAP net income(259) (771) (995) (1,182) 
Non-cash income tax (benefit) expenseNon-cash income tax (benefit) expense (15,593) (1,333) (23,759) 647  Non-cash income tax (benefit) expense(59,697) (11,317) 7,340  (8,166) 
Non-GAAP net income (loss) $(9,565) $(4,430) $109,011  $101,528  
Non-GAAP net incomeNon-GAAP net income$4,463  $41,382  $48,024  $118,576  
Per diluted share:Per diluted share:Per diluted share:
Net income (loss) attributable to Blucora, Inc.$(1.28) $(0.37) $0.62  $1.28  
Net income (loss) attributable to Blucora, Inc. (1)Net income (loss) attributable to Blucora, Inc. (1)$1.03  $0.62  $(5.52) $1.88  
Stock-based compensationStock-based compensation0.10  0.06  0.23  0.19  Stock-based compensation0.08  0.08  0.06  0.13  
Amortization of acquired intangible assetsAmortization of acquired intangible assets0.19  0.18  0.55  0.52  Amortization of acquired intangible assets0.14  0.20  0.30  0.34  
Impairment of intangible asset1.05  —  1.03  —  
Gain on the sale of a business  (0.07) —  (0.07) —  
Acquisition and integration costsAcquisition and integration costs0.14  —  0.36  —  Acquisition and integration costs0.06  0.18  0.18  0.22  
Restructuring—  —  —  0.01  
Impact of noncontrolling interests  —  0.08—  0.08  
Impairment of goodwillImpairment of goodwill—  —  5.62  —  
Executive transition costsExecutive transition costs0.01  —  0.20  —  
Headquarters relocation costsHeadquarters relocation costs0.02  —  0.03  —  
Cash tax impact of adjustments to GAAP net incomeCash tax impact of adjustments to GAAP net income(0.01) (0.01) (0.04) (0.03) Cash tax impact of adjustments to GAAP net income(0.01) (0.02) (0.02) (0.02) 
Non-cash income tax (benefit) expenseNon-cash income tax (benefit) expense (0.32) (0.03) (0.48) 0.01  Non-cash income tax (benefit) expense(1.24) (0.23) 0.15  (0.16) 
Non-GAAP net income (loss) per share $(0.20) $(0.09) $2.20  $2.06  
Non-GAAP net income per shareNon-GAAP net income per share$0.09  $0.83  $1.00  $2.39  
Weighted average shares outstanding used in computing per diluted share amountsWeighted average shares outstanding used in computing per diluted share amounts48,652  47,712  49,596  49,292  Weighted average shares outstanding used in computing per diluted share amounts48,092  49,822  48,172  49,681  
____________________________

(1)
ThreeAs presented in the condensed consolidated statements of comprehensive income, net loss per share attributable to Blucora, Inc. was $5.55 for the six months ended SeptemberJune 30, 2019 compared with three months ended September 30, 2018
The increase in non-GAAP2020 and was calculated based on weighted average shares outstanding of 47,884,000, which excluded the effect of potentially dilutive shares due to the net loss was primarilyearned for the period. For non-GAAP reconciliation purposes, net loss per share attributable to Blucora, Inc. of $5.52 presented in the table above included the effect of potentially dilutive shares due to an increase in segment operating income of $7.7 million related to our Wealth Management segment, offset by an increase in segment operating loss of $5.1 million related to our Tax Preparation segment, a $1.9 million increase in corporate operating expenses not allocated to the segments and a $1.9 million increase in interest expense, amortization of debt issuance costs and accretion of debt discounts.
Nine months ended September 30, 2019 compared with nine months ended September 30, 2018
The increase in non-GAAP net income was primarily due to an increase in segment operating income of $12.6 million related to our Tax Preparation segment, an increase in segment operating income of $10.2 million related to our Wealth Management segment, and a $1.7 million decrease in loss on debt extinguishment onearned during the Blucora senior secured credit facilities,period.
32Blucora, Inc. | Q2 2020 Form 10-Q 38

offset by a $5.5 million increase in corporate operating expenses not allocated to the segments, and a $2.5 million increase in interest expense, amortization of debt issuance costs and accretion of debt discounts.
33

LIQUIDITY AND CAPITAL RESOURCES
Cash and Cash Equivalents
Our principal source of liquidity is our cash and cash equivalents. As of SeptemberJune 30, 2019,2020, we had cash and cash equivalents of approximately $97.5$90.1 million. Broker-dealer subsidiaries of ourOur Avantax Wealth Management business operatebroker-dealer subsidiary operates in a highly regulated industry and areis subject to various regulatory capital requirements. Failure to meet minimum capital requirements can initiate certain mandatory orand possible additional discretionary actions by regulators that, if undertaken, could have substantial monetary and non-monetary impacts to operations of our Wealth Management business.on Avantax’s operations. As of SeptemberJune 30, 2019, our Wealth Management business2020, Avantax met all capital adequacy requirements to which it was subject.
We generally invest our excess cash in high-quality marketable investments. These investments generally includemoney market funds that are made up of securities issued by agencies of the U.S government. We may invest, from time-to-time, in other vehicles, such as debt instruments issued by the U.S. federal government and its agencies, international governments, municipalities, and publicly-heldpublicly held corporations, as well as commercial paper and insured time deposits with commercial banks, and money market funds invested in securities issued by agencies of the U.S., although specificbanks. Specific holdings can vary from period to period depending upon our cash requirements. We believe ourOur financial instrument investments held at SeptemberJune 30, 20192020 had minimal default risk and short-term maturities.
Historically, we have financed our operations primarily from cash provided by operating activities. Accordingly, we believe that theactivities and access to credit markets. Our historical uses of cash generated fromhave been funding our operations, capital expenditures, business combinations that enhance our strategic position, and the cash and cash equivalents we have on hand will be sufficientshare repurchases under share repurchase programs. We plan to meetfinance our operating, working capital, regulatory capital requirements ofat our broker-dealer subsidiaries,subsidiary, and capital expenditure requirements for at least the next 12 months.months largely through cash and cash equivalents. However, the underlying levels of revenues and expenses that we project may not prove to be accurate, and we may be required to draw on our $65.0 million revolving credit facilitythe Revolver (as defined below) or increase the principal amount of the Term Loan (as defined below) to meet our capital requirements.
Since our results of operations are sensitive to various factors, including, among others, the level of competition we face, regulatory and legal impacts, and political and economic conditions, such factors could adversely affect our liquidity and capital resources. In addition, due to the coronavirus pandemic, we have experienced and may continue to experience near-term volatility in our results of operations that could further increase our liquidity needs. Due to this volatility, we have taken several measures to ensure proper liquidity levels. We are maintaining flexibility in our cash flows by applying a heightened sense of focus in monitoring and managing our cash needs. In the first quarter of 2020, we accessed our Revolver (as defined below) for temporary liquidity needs and subsequently repaid such borrowings in full. In addition, we increased the principal outstanding under our Term Loan to fund the HKFS Acquisition and provide additional working capital flexibility. Overall, we believe these measures provide us with the capital flexibility to satisfy our obligations, fund our operations, and invest in our businesses.
For further discussion of the risks to our business related to liquidity, see “Item 1A. Risk Factors” under the risk factor titled "Existingheading “Existing cash and cash equivalents and cash generated from operations may not be sufficient to meet our anticipated cash needs for servicing debt, working capital, and capital expenditures"expenditures” in Part I Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2018,2019 and the risk factors under the caption "Risks Related to our Financing Arrangements"set forth in Part II, Item 1A in this Quarterly Report on Form 10-Q.
Sources and Uses of Cash
We may use our cash and cash equivalents balance in the future on investmentto invest in our current businesses, for repayment of debt, for acquiring companies or assets, that complement our Wealth Management and Tax Preparation businesses, for stock repurchases,buybacks, for returning capital to stockholders, or for other utilization whichutilizations that we deem to be in the best interests of stockholders.
Indebtedness
In May 2017, we entered into a credit agreement (as the same has been amended, the “Credit Agreement”) with a syndicate of lenders whichthat provides for a term loan facility (the “Term Loan”) and a revolving line of credit (including a letter of credit sub-facility) (the “Revolver”) for working capital, capital expenditures, and general business needs (as amended, thepurposes (the “Blucora senior secured credit facilities”Senior Secured Credit Facility”). The Blucora senior secured credit facilities provide for up to $565.0 million of borrowings, consisting of a committed $65.0 million revolving credit facility (including a letter of credit sub-facility)Revolver and a $500.0 million term loan facility thatthe Term Loan mature on May 22, 2022 and May 22, 2024, respectively. Obligations under the Blucora senior secured credit facilities are guaranteed by certain
As of our subsidiaries and secured by substantially all of the assets of the Company and certain of its subsidiaries.
The interest rate on the term loan is variable at the London Interbank Offered Rate, plus the applicable interest rate margin of 3.00% for Eurodollar Rate loans and 2.00% for ABR loans. Depending on our Consolidated First Lien Net Leverage Ratio (as definedJune 30, 2020, we had $389.1 million in the credit facility agreement), the applicable interest rate margin on the revolving credit facility is from 2.75% to 3.25% for Eurodollar Rate loans and 1.75% to 2.25% for ABR loans. Obligations under the Blucora senior secured credit facilities are guaranteed by certain of Blucora's subsidiaries and secured by substantially all of the assets of Blucora and those subsidiaries.
The Blucora senior secured credit facilities include financial and operating covenants with respect to certain ratios, including a net leverage ratio, which are defined further in the credit facility agreement. We were in compliance with these covenants as of September 30, 2019. We have borrowed $500.0 million under the term loan and have made prepayments of $110.0 million towards the term loan since entering into the agreement, such that $390.0 million wasprincipal amount outstanding under the Term Loan and no amounts outstanding under the Revolver. Based on aggregate loan commitments as of June 30, 2020, approximately $65.0 million was available for future borrowing under the Senior Secured Credit Facility.

On July 1, 2020, we increased our Term Loan by $175.0 million. As of July 1, 2020, after giving effect to the increase to the Term Loan, we had term loan atloans with an aggregate principal amount of $564.1 million outstanding
Blucora, Inc. | Q2 2020 Form 10-Q 39

under the Credit Agreement. As the Term Loan increase was effective July 1, 2020, the consolidated financial statements as of and for the three and six months ended June 30, 2020 did not reflect the increase to the Term Loan.
Approximately $100.0 million of the proceeds from the increase to the Term Loan were used to fund the purchase price of the HKFS Acquisition, as well as to pay related fees and expenses. We intend to use the remainder of the proceeds from the increase to the Term Loan for additional working capital. The Company is required to make principal amortization payments on the Term Loan quarterly on the last business day of each March, June, September and December, beginning on September 30, 2019. As of September 30, 2019, we had not borrowed any amounts under the revolving credit loan and did not have any other debt outstanding. Commencing December 31, 2019, principal payments of the term loan are due on a quarterly basis2020, in an amount equal to $312,500$0.5 million (subject to reduction for prepayments), with the remaining principal amount of the Term Loan due on the maturity date of May 22, 2024.
On July 2, 2015, TaxAct acquired SimpleTax, which included
For additional consideration of up to C$4.6 million (with C$ indicating Canadian dollars and amounting to approximately $3.7 million basedinformation on the acquisition-date exchange rate). The related payments were contingent upon product availabilityTerm Loan, Revolver, and revenue performance over a three-year period and were to bethe Credit Agreement, see, “Item 1. Financial Statements—Note 6.”
34

Share Repurchase Plan
paid annually over that period. The third and final payment of $1.3 million was made in the first quarter of 2019. SimpleTax was sold for $9.6 million (C$12.8 million) on September 4, 2019.
In connection with our 2015 acquisition of HD Vest, former management of that business retained an ownership interest in HD Vest. We were party to put and call arrangements that became exercisable beginning in the first quarter of 2019 with respect to these interests. These put and call arrangements allow certain former members of HD Vest management to require the Company to purchase their interests or allow the Company to acquire such interests for cash, respectively, within ninety days after the Company filed its Annual Report on Form 10-K for the year ended December 31, 2018, which occurred on March 1, 2019. These arrangements were settled in cash for $24.9 million in the second quarter of 2019.
On March 19, 2019, we announced that our board of directors authorized a stock repurchase plan pursuant to which we maymay repurchase up to $100.0 million of our common stock. Pursuant to the plan, share repurchases may be made through a variety of methods, including open market or privately negotiated transactions. The timing and number of shares repurchased will depend on a variety of factors, including price, general business and market conditions, and alternative investment opportunities. Our repurchase program does not obligate us to repurchase any specific number of shares, and may be suspended or discontinued at any time. In addition,time, and does not have a specified expiration date.
For the six months ended June 30, 2020, we did not repurchase any repurchases of our stock pursuant to the stock repurchase plan may materially reduce the amount of cash we have available and may not materially enhance the long-term value of our business or our stock. We repurchased approximately 561,000 shares of our common stock for an aggregate purchase priceunder the stock repurchase plan. As of $12.7June 30, 2020, there was still approximately $71.7 million duringin remaining capacity under the nine months ended September 30, 2019. From October 1, 2019 through October 31, 2019,stock repurchase plan. In assessing our capital allocation priorities, we repurchased approximately 431,000do not expect to make additional shares of our common stock for an aggregate purchase price of $9.1 million.
On May 6, 2019, we completed the Acquisition, which was paid with a combination of (i) $55.0 million of cash on hand and (ii) the proceeds from a $125.0 million increaseshare repurchases in the term loan under the Blucora senior secured credit facilities.near term.
We have been investing, and expect to continue to invest, in our Tax-Smart Innovation (“TSI”) platform that has been made available to certain Avantax Wealth Management advisors. Our TSI platform is designed to help advisors systematically capture tax-alpha for clients across multiple accounts. Our unique approach is designed to identify the top opportunities in an advisor’s client base every day and help automate the capture of that opportunity in a fraction of the time. As TSI continues to be used by more advisors, it is expected to improve advisor performance and retention, and potentially provide incremental Wealth Management segment income.
Contractual Obligations and Commitments
The material changeschange in our contractual obligations and commitments through the third quarter of 2019, outside of the ordinary course of our business, includerelated to debt activity (as described above under "Use of cash"),in payment of the final portion of the SimpleTax acquisition-related contingent consideration liability, a new office lease, which is expected to commence in the first quarter of 2020, purchase commitments of approximately $3.4 million over the next year from 1st Global, and sublease income of $1.3 million, primarily related to the sublease of the Bellevue facility.“Indebtedness” above). Additional information on the Company’s Commitmentsour contractual obligations and Contingenciescommitments can be found in the Company’s Annual Report onour Form 10-K for the year ended December 31, 2018.2019.
Off-balance Sheet Arrangements
We had no off-balance sheet arrangements as of SeptemberJune 30, 2019.2020.
Cash Flows
Our cash flows were comprised of the following:
(In thousands)(In thousands)Nine months ended September 30,(In thousands)Six months ended June 30,
2019  2018   20202019Change ($)
Net cash provided by operating activities Net cash provided by operating activities  $96,247  $105,583  Net cash provided by operating activities$34,374  $96,812  $(62,438) 
Net cash used by investing activities Net cash used by investing activities  (165,981) (5,340) Net cash used by investing activities(19,072) (167,399) 148,327  
Net cash provided (used) by financing activitiesNet cash provided (used) by financing activities 83,080  (73,952) Net cash provided (used) by financing activities(10,405) 94,915  (105,320) 
Effect of exchange rate changes on cash, cash equivalents, and restricted cash Effect of exchange rate changes on cash, cash equivalents, and restricted cash  38  (11) Effect of exchange rate changes on cash, cash equivalents, and restricted cash—  58  (58) 
Net increase in cash, cash equivalents, and restricted cash Net increase in cash, cash equivalents, and restricted cash  $13,384  $26,280  Net increase in cash, cash equivalents, and restricted cash$4,897  $24,386  $(19,489) 
Blucora, Inc. | Q2 2020 Form 10-Q 40

Net cash from operating activities:activities
Net cash from operating activities consists of income (loss), offset by certain non-cash adjustments, and changes in our working capital.operating assets and liabilities. Operating cash flows and changes in operating assets and liabilities were as follows:
(In thousands)Six months ended June 30,
 20202019Change ($)
Net income (loss)$(265,849) $93,206  $(359,055) 
Non-cash adjustments306,914  34,063  272,851  
Operating cash flows before changes in operating assets and liabilities41,065  127,269  (86,204) 
Changes in operating assets and liabilities(6,691) (30,457) 23,766  
Net cash provided by operating activities$34,374  $96,812  $(62,438) 
Net cash provided by operating activities was $96.2 million and $105.6$34.4 million for the ninesix months ended SeptemberJune 30, 2020 and included $41.1 million of operating cash flows before changes in operating assets and liabilities, partially offset by $6.7 million from changes in operating assets and liabilities. For the six months ended June 30, 2020 compared to the six months ended June 30, 2019, operating cash flows before changes in operating assets and 2018, respectively. The activityliabilities decreased $86.2 million primarily due to the following factors:
•Operating income from our Tax Preparation business decreased $76.2 million; and
•Executive transition costs of $9.8 million were recognized in the ninefirst quarter of 2020 due to the departure of certain Company executives.
The increase in the changes in operating assets and liabilities of $23.8 million was primarily due to working capital adjustments experienced in the six months ended SeptemberJune 30, 2019 included a $(6.8) million workingresulting from the 1st Global Acquisition.
35

capital contribution and approximately $103.0 million of income (offset by non-cash adjustments). The working capital contribution was primarily driven by the impact of 1st Global.
The activity in the nine months ended September 30, 2018 included a $(2.8) million working capital contribution and approximately $109.4 million of income (offset by non-cash adjustments). The working capital contribution was primarily driven by accrued expenses and the impact of TaxAct's seasonality.
Net cash from investing activities: Net cash from investing activities primarily
Net cash used by investing activities consists of cash outlays for business acquisitions, transactions (purchases of and proceeds from sales and maturities) related to our investments, and purchases of property and equipment. Our investing activities can fluctuate from period-to-period primarily based upon the level of acquisition activity.Investing cash flows were as follows:
(In thousands)Six months ended June 30,
 20202019Change ($)
Business acquisition, net of cash acquired$—  $(164,461) $164,461  
Purchases of property and equipment(19,072) (2,938) (16,134) 
Net cash used by investing activities$(19,072) $(167,399) $148,327  
Net cash used by investing activities was $166.0$19.1 million and $5.3$167.4 million for the ninesix months ended SeptemberJune 30, 20192020 and 2018,2019, respectively. The activity$148.3 million decrease in the nine months ended September 30, 2019 consisted ofnet cash used by investing activities was primarily due to cash outlays for the 1st Global Acquisition and approximately $6.9 million in purchases of property and equipment,May 2019. This decrease was partially offset by an increase in cash outlays for office equipment and leasehold improvements related to the sale of SimpleTax. The activity in the nine months ended September 30, 2018 consisted of approximately $5.3 million in purchases of property and equipment.new headquarters office building, as well as additional capitalized software costs.
Blucora, Inc. | Q2 2020 Form 10-Q 41

Net cash from financing activities: activities
Net cash from financing activities primarily consists of transactions related to the issuance of debt and stock. Our financing activities can fluctuate from period-to-period based upon our financing needs and market conditions that present favorableneeds. Financing cash flows were as follows:
(In thousands)Six months ended June 30,
 20202019Change ($)
Proceeds from credit facilities$55,000  $121,499  $(66,499) 
Payments on credit facilities(65,625) —  (65,625) 
Payment of redeemable noncontrolling interests—  (24,945) 24,945  
Proceeds from stock option exercises25  3,320  (3,295) 
Proceeds from issuance of stock through employee stock purchase plan1,201  1,144  57  
Tax payments from shares withheld for equity awards(1,006) (5,160) 4,154  
Contingent consideration payments for business acquisition—  (943) 943  
Net cash provided (used) by financing activities$(10,405) $94,915  $(105,320) 
Net cash used by financing opportunities.activities for the six months ended June 30, 2020 primarily consisted of $65.6 million of repayments under our Revolver, which was partially offset by $55.0 million of additional borrowings.
Net cash provided by financing activities was $83.1 million for the ninesix months ended September 30, 2019 compared to net cash used by financing activities of $74.0 million for the nine months ended September 30, 2018. The activity for the nine months ended SeptemberJune 30, 2019 primarily consisted of $121.5 million of borrowings under the Blucora senior secured credit facilities and approximately $5.0Senior Secured Credit Facility that were used to fund the 1st Global Acquisition, as well as $4.5 million in combined proceeds from the issuance of common stock related to stock option exercises and the employee stock purchase plan. These cash inflows were partially offset by $24.9 million to settle redeemable noncontrolling interestsinterest related to the 2015 acquisition of HD Vest $12.0 million of share repurchases, $5.5in 2015, as well as $5.2 million in tax payments from shares withheld for equity awards and $0.9 million in contingent consideration paid related to the 2015 acquisition of SimpleTax.
The activity for the nine months ended September 30, 2018 primarily consisted of payments of $80.0 million towards the term loan under the Blucora senior secured credit facilities, $6.0 million in tax payments from shares withheld for equity awards, and $1.3 million in contingent consideration paid related to the 2015 acquisition of SimpleTax. These cash outflows were offset by approximately $13.3 million in combined proceeds from the issuance of common stock related to stock option exercises and the employee stock purchase plan.awards.
Critical Accounting Policies and Estimates
Business CombinationsImpairment of goodwill
The applicationGoodwill represents the cost of the purchase method of accounting for business combinations requires the use of significant estimates and assumptions in the determination ofan acquisition less the fair value of the net identifiable assets acquired and liabilities assumed in order to properly allocate purchase price consideration between assets that are depreciated and those that are amortized from goodwill. Our estimates of the fair values of assets and liabilities acquired are based upon assumptions believed to be reasonable, and when appropriate, include assistance from independent third-party appraisal firms.
Intangible Asset Impairment
business. We evaluate indefinite-lived intangible assetsgoodwill for impairment annually, as of November 30, or more frequently when events or circumstances indicate it is more likely than not that impairment may have occurred. The assessment ofthe fair value usedof one or more of our reporting units is less than its carrying amount. To determine whether it is necessary to perform a goodwill impairment test, we first assess qualitative factors to evaluate whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. We may elect to perform a goodwill impairment test without completing a qualitative assessment.
Beginning in our intangibleMarch 2020, the coronavirus pandemic had a significant negative impact on the U.S. and global economy and caused substantial disruption in the U.S. and global securities markets, and as a result, negatively impacted certain key Wealth Management business drivers, such as client asset levels and interest rates. These macroeconomic and Company-specific factors, in totality, served as a triggering event that resulted in the testing of the goodwill of the Wealth Management reporting unit and the Tax Preparation reporting unit for potential impairment.
As part of the goodwill impairment evaluations usestest, we compared the estimated fair values of the Wealth Management and Tax Preparation reporting units to their respective carrying values. Estimated fair value was calculated using Level 3 inputs and utilized a blended valuation method that factored in the income approach and the market approach. The income approach estimated fair value by using the present value of future discounted cash flows, an income approach. The significant
flows. Significant estimates we useused in ourthe discounted cash flow models include the weighted-averagemodel included our forecasted cash flows, our long-term rates of growth, and our weighted average cost of capital. The weighted average cost of capital and long-term rates of revenue growth. The weighted-average cost of capital considersfactors in the relevant risk associated with business-specific characteristics and the uncertainty related to the ability to achieve theour projected cash flows. These estimatesThe market approach estimated fair value by taking income-based valuation multiples for a set of comparable companies and applying the resulting valuations require significant judgment. valuation multiple to each reporting unit’s income.
Blucora, Inc.Our estimates | Q2 2020 Form 10-Q 42

For the Wealth Management reporting unit, the carrying value of the reporting unit exceeded its fair valuesvalue by $270.6 million. Therefore, we recorded an impairment of intangible assets are based upon assumptions believedgoodwill of $270.6 million for the three months ended March 31, 2020. For the Tax Preparation reporting unit, the carrying value of the reporting unit was significantly below its fair value, and therefore, no impairment of goodwill was deemed necessary.
While no goodwill impairment triggering events were identified during the three months ended June 30, 2020, the Wealth Management reporting unit is considered to be reasonable,at risk for a future impairment of its goodwill in the event of a further decline in general economic, market, or business conditions, or any significant unfavorable changes in our forecasted revenue, expenses, cash flows, weighted average cost of capital, and/or market valuation multiples. We will continue to monitor for events and when appropriate, include assistance from independent third-party appraisal firms.
Seecircumstances that could negatively impact the remainderkey assumptions in determining the fair value of our critical accounting policies, estimates, and methodologies as described in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2018.Wealth Management reporting unit.
Recent Accounting Pronouncements
See "Note 2: Summary of Significant Accounting Policies" of the Notes to Unaudited Condensed Consolidated"Item 1. Financial Statements in Part I, Item 1 of this report.Statements—Note 2" for additional information on recently adopted accounting pronouncements.
36

Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes to ourthe instruments in which we are exposed to market risk during the ninesix months ended SeptemberJune 30, 2019. We have borrowed $500.02020. As of June 30, 2020, we had $389.1 million in principal amount of debt outstanding under the term loanTerm Loan of the Blucora senior secured credit facilities, and asour Senior Secured Credit Facility, which carries a degree of September 30, 2019, we had $390.0 million outstanding. The interest rate on the term loan is variable atrisk. This debt has a floating portion of its interest rate tied to the London Interbank Offered Rate ("LIBOR"“LIBOR”), subject to a floor of 1.00%, plus a margin of 3.00%. For further information on our outstanding debt, see “Item 1. Financial Statements—Note 6.” A hypothetical 100 basis point increase in LIBOR on June 30, 2020 would result in a $3.9$15.4 million increase based upon our September 30, 2019 principal amount, in our annual interest expense until the scheduled maturity date in 2024.
For additional information, see Part II, Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2018.2019.

Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, has evaluated (pursuant to Rule 13a-15(b) of the Securities Exchange Act of 1934), the effectiveness of our disclosure controls and procedures as of SeptemberJune 30, 2019.2020. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Rule 13a-15(e)) were effective as of SeptemberJune 30, 2019.2020.
Changes in Internal Control over Financial Reporting
There was no changeOur internal control environment has been impacted by work-from-home requirements for our employees. These requirements began in mid-March and have continued through the date of this report. While modifications were made to the manner in which controls were performed, these changes did not have a material impact on our internal control over financial reporting, that occurredand there were no changes to our internal control over financial reporting during the third quarter of 2019ended June 30, 2020 that hashave materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION
Item 1. Legal Proceedings
See "Note 8: Commitments and Contingencies" of the Notes to Unaudited Condensed Consolidated“Item 1. Financial Statements in Part I Item 1 of this report.Statements—Note 10” for additional information on our legal proceedings.

Blucora, Inc. | Q2 2020 Form 10-Q 43

Item 1A. Risk Factors
Our business and future results may be affected by a number of risks and uncertainties that should be considered carefully. In addition, this report also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in such forward-looking statements as a result of certain factors, including the risks described in Part I, Item 1A of the Company’sour Annual Report on Form 10-K for the year ended December 31, 20182019 and the risks set forth below.
The Company believesWe believe that there hashave been no material changechanges in itsour risk factors as previously disclosed in the Form 10-K other than as set forth below. The occurrence of one or more of the events listed below could have a material adverse effect on the Company’sour business, prospects, results of operations, reputation, financial condition, cash flows, or ability to continue current operations without any direct or indirect impairment or disruption, which is referred to throughout these Risk Factorsrisk factors as a “Material Adverse Effect.”
RISKS ASSOCIATED WITH OUR BUSINESSES
We may fail to realize all ofPandemics, including the anticipated benefits of the Acquisition of 1st Global or those benefits may take longer to realize than expected. We may also encounter significant difficulties in integrating the operations of 1st Global.
Our ability to realize the anticipated benefits of the Acquisition of 1st Global will depend, to a large extent, on our ability to integrate 1st Global’s business with ours, which will be a complex, costly and time-consuming process. As a result, werecent coronavirus pandemic, could have been devoting and will continue to devote significant management attention and resources to integrate our business practices and operations with those of 1st Global. The integration process may disrupt our business and, if implemented ineffectively, could restrict the realization of the full expected benefits of the Acquisition. The failure to meet the challenges involved in the integration process and to realize the anticipated benefits of the Acquisition could cause an interruption of, or a loss of momentum in, our operations and could result in a Material Adverse Effect.
As we integrate 1st Global’s business, we are likelyIn late 2019, a novel strain of coronavirus was reported to incur costs relatinghave surfaced in Wuhan, China. Beginning in January 2020, the coronavirus spread to selectionother countries, including the United States, and implementationefforts to contain the spread of uniform procedures, systems, vendors and platforms for our Wealth Management business,the coronavirus intensified. The various precautionary measures taken by many governmental authorities around the world in order to limit the spread of the coronavirus as well as the societal response have had, and could continue to have, an adverse effect on the global markets and economy, including on the availability of and costs associated with exiting certain relationshipsemployees, resources, and agreements. Theseother aspects of the global economy. The development of the coronavirus pandemic could also cause significant disruptions to our business and operations and the operations of our financial professionals, increase costs and burdens associated with staffing and conducting our operations, increase our risk of being subject to contract performance claims, or increase the risk that our counterparties fail to perform under their respective contracts or commitments, if we or they are unable to deliver according to the terms of such contracts or commitments and do not have the ability to claim force majeure.
Our Wealth Management segment, which provides tax-focused wealth management solutions for financial professionals, tax preparers, certified public accounting firms, and their clients, primarily generates revenue through securities and insurance commissions, quarterly investment advisory fees based on advisory assets, product marketing service agreements, and other agreements and fees. The coronavirus pandemic has had a material negative impact on the U.S. and global economy as a whole and has caused substantial disruption in the U.S. and global securities and debt markets. This economic and market disruption has negatively impacted the value of some of our clients’ assets, which has caused and we expect will continue to cause a corresponding decline in the amount of revenue that we derive from these client assets. Further, as a result of this economic and market disruption, we have experienced and expect that we may continue to experience a decline in commission revenue from lower trading volumes, a reduction in advisory revenue, significantly reduced cash sweep revenue due to changes in prevailing interest rates, losses sustained from our customers’ and market participants’ failure to fulfill their settlement obligations, reduced net interest earnings, and other losses. The coronavirus pandemic has also affected the business of our financial professionals in many ways. For example, our financial professionals have not been able to meet with clients face-to-face during the pandemic, and they have also had to assist clients through an extended tax season and in applying for loans under the U.S. Small Business Administration’s Paycheck Protection Program. This sustained change in business or the loss of financial professionals who are not able to continue their business during this difficult time could be material.lead to lower revenue and could have a Material Adverse Effect.
Our Tax Preparation segment, which provides digital do-it-yourself tax preparation solutions for consumers, small business owners, and tax professionals, primarily generates revenue through digital tax preparation services. In March 2020, the IRS extended the deadline for specified U.S. federal income tax payments and federal income tax returns due April 15, 2020 to July 15, 2020 in response to the coronavirus pandemic. This filing extension resulted in the shifting of a significant portion of Tax Preparation segment revenue that is usually earned in the first and second quarters of 2020 to the third quarter of 2020, as well as increased expenses. As a result, our results of operations for our Tax Preparation segment were negatively impacted in the first and second quarters of 2020 compared to the corresponding periods in prior years. It is currently unknown if the IRS will need to extend the tax filing deadline in 2021, and this limits our ability to plan for the next tax season and could also cause confusion amongst tax filers that could result in less tax filers who use our product.
In addition, we have historically financed our operations primarily from cash provided by operating activities and access to credit markets. To the integration of 1st Global’s business may result in material unanticipated problems, expenses, liabilities, competitive responses and loss of advisors, customers and other business relationships. Additional integration challenges could include:extent that the coronavirus pandemic causes a substantial reduction or change
37Blucora, Inc. | Q2 2020 Form 10-Q 44

•diversion of management’s and our employees' attention to integration matters;
•difficulties in achieving anticipated cost savings, synergies, business opportunities and growth prospects from  the Acquisition;
•difficulties in the integration of operations and systems, including the usetiming of our new clearing platform;cash provided by operating activities, we may be required to seek additional capital through issuances of debt or equity securities. We may be unable to complete any such transactions on favorable terms to us, or at all. The instruments governing our existing indebtedness require us to comply with certain restrictive covenants, and any substantial and sustained downturn in our operations due to the coronavirus or other factors may cause us to be in breach of our debt covenants or limit our ability to make interest payments on our indebtedness, which could constitute an event of default and cause our outstanding indebtedness to be declared immediately due and payable. If applicable, such acceleration of our outstanding indebtedness could cause our secured lenders to foreclose against the assets securing their borrowings, and we could be forced into bankruptcy or liquidation. Any inability to obtain additional liquidity as and when needed, or to maintain compliance with the instruments governing our indebtedness, would have a Material Adverse Effect.
•difficulties in conforming standards, controls, procedures and accounting and other policies, business cultures  and compensation structures;
•difficulties in keeping advisors and clients who may have changing products or services;
•difficulties in the assimilation of employees;
•difficulties in managing the expanded operations of a significantly larger and more complex company;
•challenges in attracting and retaining key personnel; and
•the impact of potential liabilities inherited from 1st Global, including a potential liability related to a regulatory inquiry (see "Note 3: Business Combinations"Any of the Notes to Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this report for additional information).
Additionally, following the integration of 1st Global, we may also receive greater regulatory scrutiny and could incur additional compliance costs. Many of theseforegoing factors will be outside of our control and any one of them could result in increased costs, decreases in the amount of expected revenues and diversion of management’s time and energy, which could result in a Material Adverse Effect and result in us becoming subject to additional litigation.
In addition, even if 1st Global’s business is integrated successfully, the full anticipated benefits of the Acquisition may not be realized, including the synergies, cost savings or sales or growth opportunities that are anticipated. These benefits may not be achieved within the anticipated time frame, or at all. Further, additional unanticipated costs may be incurred in the integration process. All of these factors could cause reductions inon our earnings per share, decrease or delay the expected accretive effect of the Acquisition and negatively impact the price of shares of our common stock. As a result, it cannot be assured that the Acquisition will result in the realization of the full anticipated benefits and potential synergies.
We have incurred significant transaction costs and will continue to incur integration costs, which could also be significant, in connection with the Acquisition of 1st Global that could cause a Material Adverse Effect.
We have incurred significant transaction costs in connection with the Acquisition of 1st Global, including payment of certain fees and expenses incurred in connection with the Acquisition and the financing of the Acquisition. In addition, we expect to incur additional integration costs, which could be significant. These costs could adversely affect ourrevenues, results of operations inand financial condition. The extent to which the period in which such expenses are recorded or our cash flow in the period in which any related costs are actually paid.
If our goodwill or other intangible assets become impaired, we may be required to record a significant impairment charge, which could result in a Material Adverse Effect.
We are required to test goodwill for impairment at least annually or more frequently if there are indicators that the carrying amount of our goodwill and other intangible assets, which consist primarily of our advisor, customer and sponsor relationships, our technology and our trade names, exceed their carried value. For these impairment tests, we use various valuation methods to estimate the fair value of our goodwill and intangible assets. If the fair value of an asset is less than its carrying value, we would recognize an impairment charge for the difference. As of September 30, 2019, we had recorded a total of $663.0 million of goodwill and $301.5 million of other intangible assets. During the three months ended September 30, 2019, in connection with the Rebranding we recorded a non-cash impairment charge of approximately $50.9 million, as discussed further in "Note 12: Intangible Asset Impairment" in Part I, Item 1 of this report.
It is possible that we could have additional impairment charges for goodwill or other intangible assets in future periods if, among other things, (i) overall economic conditions in current or future years decline, (ii) business conditions or our strategies for a specific business unit or our trade names change from our current strategies or assumptions or (iii) we sufferfrom an event thatcoronavirus impacts our reputation or brand. If we divest or discontinue businesses or products that we previously acquired, or if the value of those parts of our business become impaired, we also may need to evaluate the carrying value of our goodwill. Any such charges could negatively impact our operating results and could cause a Material Adverse Effect.
If we are unable to attract and retain productive advisors, our financial results will depend on future developments, which are highly uncertain and cannot be negatively impacted.
Our Wealth Management business derives a large portion of its revenues from commissions and fees generated by its advisors. Our ability to attract and retain productive advisors has contributed significantly to our growth and success. If we fail to attractpredicted, including new advisors or to retain and motivate our advisors, our businessinformation which may suffer.
38

The market for productive advisors is highly competitive, and we devote significant resources to attracting and retainingemerge concerning the most qualified advisors. In attracting and retaining advisors, we compete directly with a variety of financial institutions such as wirehouses, regional broker-dealers, banks, insurance companies and other independent broker-dealers. Financial industry competitors are increasingly offering guaranteed contracts, upfront payments, and greater compensation to attract successful financial advisors. These can be important factors in a current advisor’s decision to leave us as well as in a prospective advisor’s decision to join us. We may also experience difficulty retaining advisors following the Acquisition as our advisors may not like the products or services we offer as a combined company, may not like our compensation structure or they may not like the combined business. In addition, we recently rebranded our Wealth Management business to Avantax Wealth Management. Our advisors may be unhappy with the new branding or with various aspectsseverity of the rebranding processcoronavirus and may decidethe actions to leave us. There can be no assurance that we will be successful in our efforts to attract and retaincontain the advisors needed to achieve our growth objectives.
Moreover, the costs associated with successfully attracting and retaining advisors could be significant, and there is no assurance that we will generate sufficient revenues from those advisors’ business to offset such costs. Designing and implementing newcoronavirus or modified compensation arrangements and equity structures to successfully attract and retain advisors is complicated. Changes to these arrangements could themselves cause instability within our existing investment teams and negativelytreat its impact, our financial results and ability to grow. In addition, our compensation arrangements with our financial advisors are primarily commission-based, which we believe incentivizes appropriate advisor performance and assists in attracting and retaining successful advisors. Our cost of revenue (which includes commissions paid to advisors) may fluctuate from quarter-to-quarter depending on the amount of commissions we are required to pay to our financial advisors, and if the amounts we are required to pay are different than our expectations, our operating results may be adversely impacted.
We have in the past issued and may in the future issue shares of common stock or other securities convertible into or exchangeable for shares of common stock to our advisors in order to attract and retain such individuals. In connection with the Acquisition of 1st Global, we issued a substantial number of equity awards to our advisors. The issuance of additional shares of our common stock upon vesting or conversion of these awards may substantially dilute the ownership interests of our existing stockholders and reduce the number of shares of common stock available for issuance under our equity incentive plans.
In addition, the wealth management industry in general is experiencing a decline in the number of younger financial advisors entering the industry. We are not immune to that industry trend. If we are unable to replace advisors as they retire, or to assist retiring advisors with transitioning their practices to existing advisors, we could experience a decline in revenue and earnings.
In addition, as some of our advisors grow their advisory assets, they may decide to disassociate from us to establish their own RIAs and take customers and associated assets into those businesses. We seek to deter advisors from taking this route by continuously evaluating our technology, product offerings, and service, as well as our advisor compensation, fees, and pay-out policies, to ensure that we are competitive in the market and attractive to successful advisors. We may not be successful in dissuading such advisors from forming their own RIAs, which could cause a material volume of customer assets to leave our platform, which would reduce our revenues and could cause a Material Adverse Effect.among others.
Our Wealth Management business is subject to extensive regulation, and failure to comply with these regulations or interpretations thereof could have a Material Adverse Effect.
Our Wealth Management business is subject to enhanced regulatory scrutiny and is heavily regulated by multiple agencies, including the Securities and Exchange Commission (“SEC,”), the Financial Industry Regulatory Authority (“(FINRA“FINRA””), state securities and insurance regulators, and other regulatory authorities. Failure to comply with these regulators’ laws, rules, and regulations could result in the restriction of the ongoing conduct or growth, or even liquidation of, parts of our business and otherwise cause a Material Adverse Effect. In addition, regulators may adopt new laws or regulations, or their interpretation of existing laws or regulations may differ from our interpretation of the laws or regulations that are applicable to our business. Regulators may also take enforcement actions based on their interpretation of the law that could require or prompt us to change our business practices, or otherwise increase our costs, including resulting in fines, penalties and disgorgement, or reduce our revenue, any of which could cause a Material Adverse Effect.
The regulatory environment in which our Wealth Management business operates is continually evolving, and the level of financial regulation to which we are subject has generally increased in recent years. Among the most significant regulatory changes affecting our Wealth Management business is the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), which mandates broad changes in the supervision and regulations of the wealth management industry. Regulators implementing the Dodd-Frank Act have adopted, proposed to adopt, and may in the future adopt regulations that could impact the manner in which we will market products and services in our Wealth Management business, manage our Wealth Management business operations, and interact with regulators. In addition, the Trump Administration has initiated and in some cases completed a broad review of U.S. fiscal laws and regulations. If significant changes are enacted as a result of this review, they could negatively impact our Wealth Management business and cause a Material Adverse Effect.
39

On June 5, 2019, the SEC adopted Regulation Best Interest (“(“Reg. BIBI””), elevating the standard of care for broker-dealers from the current “suitability” requirement towhich established a “best interest” standard when making a recommendation of any securities transaction to a retail customer. The “best interest” standard requires a broker-dealer to make recommendations without putting its financial interests ahead of the interests of a retail customer. customer and imposes certain disclosure and policy and procedural obligations. The SEC also adopted Form CRS Relationship Summary (“(“Form CRSCRS””), which requires RIAs and broker-dealers to deliver to retail investors a succinct, plain English summary about the relationship and services provided by the firm and the required standard of conduct associated with the relationship and services. In connection with adopting Reg. BI, the SEC added new record-making and recordkeepingrecord-keeping rules.
The compliance date for Reg. BI and the related rules is was June 30, 2020.
As it concerns the SEC’s efforts to evaluate firms’ compliance with Reg. BI heightensand Form CRS, the standardSEC stated on April 7, 2020 that for initial examinations of care for broker-dealers when making investment recommendations and would impose disclosure and policy and procedural obligations that could impact the compensation our Wealth Management business and its representatives receive for selling certain types of products, particularly those that offer different compensation across different share classes (such as mutual funds and variable annuities).
In addition, Reg. BI prohibitsand Form CRS, the SEC will focus on assessing whether broker-dealers have made a broker-dealergood faith effort to implement policies and its associated persons from usingprocedures reasonably designed to comply with Reg. BI and Form CRS. Although we believe we have taken steps to comply with Reg. BI and Form CRS by the term “adviser”compliance date, we are continuing to implement processes and procedures reasonably designed to comply with Reg. BI and Form CRS. If the SEC does not believe we have sufficiently complied or “advisor” if we fail to continue to comply with the broker-dealer is not an RIArequirements of Reg. BI and Form CRS, we could be subject to fines or the associated person is not a supervised person of an RIA. This prohibition may require us to change the titles of certain of our advisors, which could lead to confusion or distraction of both management and/or advisor time and attention.
Reg. BI’s new standards of conduct and other requirementsregulatory actions that heighten the duties of broker-dealers and investment advisers could result in additional compliance costs, lesser compensation, and management distraction, all of which could have a Material Adverse Effect on our business.business or financial condition. Because our brokerage business comprises a significant portion of our business, our failure to successfully conform to these standards could negatively impact our results.
Reg. BI’s new standards of conduct and other requirements that heighten the duties of broker-dealers and financial professionals have resulted in, and may continue to cause, additional supervisory, compliance, and training costs and burdens, as well as management and financial professional distraction. The additional obligations of the
Blucora, Inc. | Q2 2020 Form 10-Q 45

rule could also impact the compensation our Wealth Management business and our financial professionals receive for selling certain types of products, all of which could have a Material Adverse Effect on our business. In addition, Reg. BI prohibits a broker-dealer and its associated persons from using the term “adviser” or “advisor” if the associated person is not an investment advisor representative of an RIA. This prohibition has required us to change the titles of certain of our advisors to “financial professionals,” which could lead to confusion regarding the appropriate use of the term.
Legislatures and securities regulators in certain states in which we do business have enacted (or have considered enacting) their own standard of conduct rules for broker-dealers, insurance agents, and investment advisers. To date, the States of Nevada, Connecticut, New Jersey, New York and Massachusetts have passed legislation or proposed regulations of this sort.advisors. The requirements and scope of these state rules are not uniform. Accordingly, we may have to adopt different policies and procedures in different states, which could create added compliance, supervision, training and sales costs for our Wealth Management business. Should more states enact similar legislation or regulation, it could result in material additional compliance costs and could have a Material Adverse Effect.
Our Wealth Management business that operates under Avantax Wealth Management distributes its products and services through financial advisorsprofessionals who affiliate with us as independent contractors. There can be no assurance that legislative, judicial, or regulatory (including tax) authorities will not introduce proposals or assert interpretations of existing rules and regulations that would change, or at least challenge, the classification of our financial advisorsprofessionals as independent contractors. Although we believe we have properly classified our advisorsfinancial professionals as independent contractors, the IRS or other U.S. federal or state authorities or similar authorities may determine that we have misclassified our advisorsfinancial professionals as independent contractors for employment tax or other purposes and, as a result, seek additional taxes from us or attempt to impose fines and penalties, which could have a Material Adverse Effect on our business model, financial condition, and results of operations.
In addition, the SEC and FINRA have extensive rules and regulations with respect to capital requirements. As a registered broker-dealer, our Wealth Management business is subject to Rule 15c3-1 (the ““Net Capital RuleRule””) under the Securities Exchange Act of 1934, as amended, and related requirements of self-regulatory organizations, which specify minimum capital requirements that are intended to ensure the general soundness and liquidity of broker-dealers. As a result of the Net Capital Rule, our ability to withdraw capital from our subsidiaries that comprise our Wealth Management business could be restricted, which in turn could limit our ability to repay debt, redeem or purchase shares of our outstanding stock, or pay dividends, which could have a Material Adverse Effect. A large operating loss or charge against net capital could adversely affect our ability to expand or even maintain our present levels of business.
Our Wealth Management business offers products sponsored by third parties, including, but not limited to, mutual funds, insurance, annuities, and alternative investments. These products are subject to complex regulations that change frequently. Although we have controls in place to facilitate compliance with such regulations, there can be no assurance that our interpretation of the regulations will be consistent with various regulators’ interpretations, that our procedures will be viewed as adequate by regulatory examiners, or that the operating subsidiaries will be deemed to be in compliance with regulatory requirements in all material respects. If products sold by our Wealth Management business do not perform as anticipated due to market factors or otherwise, or if product sponsors become insolvent or are otherwise unable to meet their obligations, this could result in material litigation and regulatory action against us. In addition, we could face liabilities for actual or alleged breaches of legal duties to customers with respect to the suitability of the financial products we make available in our open architecture product platform or the investment advice of our financial advisors.professionals.
In addition, the risks we face with respect to complying with regulatory requirements for our Wealth Management business may be exacerbated by the effects of the coronavirus, particularly with respect to risks associated with our ability to comply with new regulations. Given the unprecedented nature of the coronavirus pandemic, it is difficult for us to predict how it will impact our business and our ability to adopt new policies, procedures, and training programs and employ the personnel necessary to ensure compliance with new regulations.

40
Blucora, Inc. | Q2 2020 Form 10-Q 46

The Tax Preparation and Wealth Management markets are very competitive, and failure to effectively compete could result in a Material Adverse Effect.
Our Tax Preparation business operates in a very competitive marketplace. There are many competing software products and digital services. Intuit’s TurboTax and H&R Block’s products and services have a significant percentage of the software and digital service market. Our Tax Preparation business must also compete with alternate methods of tax preparation, such as storefront tax preparation services, which includes both local tax preparers and large chains such as H&R Block, Liberty Tax, Jackson Hewitt and Credit Karma, and it may also be subject to new market entrants who may take some of our market share. As digital-do-it-yourself tax preparation continues to be characterized by intense competition, including heavy marketing expenditures, price-based competition, and new entrants, maintaining and growing market share becomes more challenging unless brand relevance, customer experience, and feature/functionality provide meaningful incremental value. If we cannot continue to offer software and services that have quality and ease-of-use that are compelling to consumers, market the software and services in a cost-effective manner, offer ancillary services that are attractive to users, and develop the software and services at a low enough cost to be able to offer them at a competitive price point, it could result in a Material Adverse Effect.
Our Tax Preparation business also faces potential competition from the public sector, where we face the risk of federal and state taxing authorities developing software or other systems to facilitate tax return preparation and electronic filing at no charge to taxpayers, which could reduce the need for TaxAct’s software and services. These or similar programs may be introduced or expanded in the future, which may cause us to lose customers and revenue. The Free File Program is currently the sole means by which the U.S. Internal Revenue Service (the “IRS”) offers tax software to taxpayers. The Free File Program is a partnership between the IRS and the Free File Alliance, a group of private sector tax preparation companies of which we are a member that has agreed to offer free electronic tax filing services to taxpayers meeting certain income-based guidelines. As part of the current program, the IRS has agreed that it will not compete with Free File Alliance companies in providing free, digital tax return preparation and filing services to taxpayers. The Free File Program’s continuation depends on a number of factors, including increasing public awareness of and access to the free program, as well as continued government support. The IRS’s current agreement with the Free File Alliance is scheduled to expire in October 2021, although it could be amended or terminated before that date. If the Free File Program is not renewed upon expiration of the agreement or if the Free File Program is amended or terminated, and the IRS enters the software development and return preparation space, the federal government would be a publicly funded direct competitor of us and the U.S. tax services industry as a whole.
The wealth management industry in which our Wealth Management business operates is also highly competitive, and we may not be able to maintain our customers, financial advisors, distribution network, or the terms on which we provide our products and services. Our Wealth Management business competes based on a number of factors, including name recognition, service, the quality of investment advice, investment performance, technology, product offerings and features, price, and perceived financial strength. Competitors in the wealth management industry include broker-dealers, banks, asset managers, insurers, and other financial institutions. Many of these competitors have greater market share, offer a broader range of products, and have greater financial resources. In addition, over time, certain sectors of the wealth management industry have become considerably more concentrated, as financial institutions involved in a broad range of financial services have been acquired by or merged into other firms. This consolidation could result in our competitors gaining greater resources, and we may experience pressures on our pricing and market share as a result of these factors and as some of our competitors seek to increase market share by reducing prices. In addition, our Wealth Management business seeks to differentiate itself on the basis of offering tax-smart investing advice and solutions. There is no guarantee that this differentiation will be meaningful to our customers and potential customers, or that another competitor will not adopt a similar strategy more effectively. In either case, our ability to compete effectively in the market could be damaged.

Our business depends on fees generated from the distribution of financial products and fees earned from management of advisory accounts.
A large portion of our revenues are derived from fees generated from the distribution of financial products, such as mutual funds and variable annuities. Changes in the structure or amount of the fees paid by the sponsors of these products could directly affect our revenues, business and financial condition. In addition, if these products experience losses or increased investor redemptions, we may receive lower fee revenue from the investment management and distribution services we provide on behalf of the mutual funds and annuities. Should issuers of these products leave the market or discontinue offering or paying trail compensation on some or all of their products, our revenues could be negatively impacted. The investment management fees we are paid may also decline over time due to factors such as increased competition, renegotiation of contracts and the introduction of new, lower-priced investment products and services. Changes in market values or in the fee structure of asset management accounts would affect our revenues, business and financial condition.
Asset management fees often are primarily comprised of base management and incentive fees, and investment advisers generally are experiencing advisory fee compression due to intense competition. Management fees are primarily based on
41

advisory assets, which are impacted by net inflow/outflow of customer assets and market values. Below-market investment performance by our funds and portfolio managers could result in a loss of managed accounts and could result in reputational damage that might make it more difficult to attract new customers and thus further impact our business and financial condition. If we were to experience the loss of managed accounts, our fee revenue would decline. In addition, as the total amount of our advisory assets increases as a percentage of our total client assets, our results of operations may become substantially more dependent on revenue generated from management fees. In periods of declining market values, our advisory assets may also decline, which would negatively impact our fee revenues. In addition, this risk would become further exacerbated the more dependent our business becomes on revenues from management fees, and our ability to effectively offset declining management fee revenue through commission-based revenues may be limited. Any of the foregoing could result in a Material Adverse Effect.
RISKS RELATED TO OUR FINANCING ARRANGEMENTS
We have incurred a significant amount of indebtedness, which may materially and adversely affect our financial condition and future financial results.
We are party to the Blucora senior secured credit facilities, which consist of a term loan and revolving line of credit for future working capital, capital expenditures and general business purposes. As of September 30, 2019, we had $390.0 million of outstanding indebtedness under the term loan, and we had not borrowed any amounts under the revolving credit facility. The final maturity date of the term loan is May 22, 2024. Under the terms of the revolving credit facility, we may borrow up to $65.0 million.
Our level of indebtedness may materially and adversely affect our financial condition and future financial results by, among other things:
•increasing our vulnerability to downturns in our businesses, to competitive pressures, and to adverse economic and industry conditions;
•requiring the dedication of a portion of our expected cash from operations to service the indebtedness, thereby reducing the amount of expected cash flow available for other purposes, including capital expenditures and complementary acquisitions;
•increasing our interest payment obligations in the event that interest rates rise; and
•limiting our flexibility in planning for, or reacting to, changes in our businesses and our industries.
The Blucora senior secured credit facilities impose certain restrictions on us, including restrictions on our ability to create liens, incur indebtedness and make investments. In addition, the Blucora senior secured credit facilities include covenants, the breach of which may cause the outstanding indebtedness to be declared immediately due and payable. This borrowing, and our ability to repay it, may also negatively impact our ability to obtain additional financing in the future and may affect the terms of any such financing.
In addition, we or our subsidiaries, may incur additional debt in the future. Any additional debt may result in risks similar to those discussed above or in other risks specific to the credit agreements entered into for those debts.
Our level of indebtedness has increased substantially as a result of the Acquisition of 1st Global.
We incurred approximately $125.0 million of additional indebtedness to fund a portion of the purchase price of the Acquisition of 1st Global. The increase in our indebtedness will have the effect of, among other things, reducing our flexibility to respond to changing business and economic conditions. In addition, the amount of cash required to make principal and interest payments on our outstanding debt has increased by approximately $8.0 million on an annual basis as a result of the increase in our indebtedness, and thus the demands on our cash resources are significantly greater than prior to the Acquisition. Our increased indebtedness may reduce funds available for capital expenditures, stock repurchases and other activities and may create competitive disadvantages for us relative to other companies with lower debt levels.
Ultimately, our ability to service our debt obligations will depend on our future performance, which will be affected by financial, business, economic and other factors, including our ability to achieve the expected benefits and cost savings from the Acquisition of 1st Global. There is no guarantee that we will be able to generate sufficient cash flow to pay our debt service obligations when due. If we are unable to meet our debt service obligations or we fail to comply with our financial and other restrictive covenants contained in the agreements governing our indebtedness, we may be required to refinance all or part of our debt, sell important strategic assets at unfavorable prices or borrow more money. We may not be able to, at any given time, refinance our debt, sell assets or borrow more money on terms acceptable to us or at all. Our inability to refinance our debt could result in a Material Adverse Effect.
OTHER RISKS
42

We cannot assure you we will continue to repurchase shares of our common stock pursuant to our stock repurchase plan.
On March 19, 2019, we announced that our board of directors authorized a stock repurchase plan pursuant to which we may repurchase up to $100.0 million of our common stock. Pursuant to the plan, share repurchases may be made through a variety of methods, including open market or privately negotiated transactions. The timing and number of shares repurchased will depend on a variety of factors, including price, general business and market conditions, our capital allocation policy, and alternative investment opportunities. Our repurchase program does not obligate us to repurchase any specific number of shares and may be suspended or discontinued at any time. Any repurchases of our stock pursuant to the stock repurchase plan may materially reduce the amount of cash we have available and may not materially enhance the long-term value of our business or our stock.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table details our repurchases of common stock for the three months ended September 30, 2019:
PeriodTotal Number of Shares Purchased (in thousands)Average Price Paid Per ShareTotal Number of Shares Purchased as Part of Publicly Announced Plans or Programs (in thousands)
Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in millions) (1)
July 1, 2019 - July 31, 2019—  —  —  $100.0  
August 1, 2019 - August 31, 2019363  $23.05  363  $91.6  
September 1, 2019 - September 30, 2019198  $21.76  198  $87.3  
    Total561  $22.65  561  
(1)On March 19, 2019, we announced that our board of directors authorized thea stock repurchase ofplan pursuant to which we may repurchase up to $100.0 million of our common stock. Pursuant to the plan, share repurchases may be made through a variety of methods, including open market or privately negotiated transactions. The timing and number of shares repurchased will depend on a variety of factors, including price, general business and market conditions, and alternative investment opportunities. The authorization does not have a specified expiration date. As of September
Share repurchase activity for the six months ended June 30, 2019, we had repurchased 561,000 shares of our common stock pursuant to the authorization.2020 by month was as follows (in thousands, except per share data):
PeriodTotal Number of Shares PurchasedAverage Price Paid Per ShareTotal Number of Shares Purchased as Part of Publicly Announced Plans or ProgramsMaximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
January 1-31, 2020— $— — $71,671 
February 1-29, 2020— $�� — $71,671 
March 1-31, 2020— $— — $71,671 
April 1-30, 2020— $— — $71,671 
May 1-31, 2020— $— — $71,671 
June 1-30, 2020— $— — $71,671 
    Total— $— — 

Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
Blucora, Inc. | Q2 2020 Form 10-Q 47
43

Item 6. Exhibits
Exhibit
Number		Exhibit DescriptionFormDate of First FilingExhibit NumberFiled
Herewith
31.1 X
31.2 X
32.1* X
32.2* X
101The following financial statements from the Company's 10-Q for the fiscal quarter ended September 30, 2019, formatted in inline XBRL: (i) Unaudited Condensed Consolidated Balance Sheets, (ii) Unaudited Condensed Consolidated Statements of Operations, (iii) Unaudited Condensed Consolidated Statements of Cash Flows, and (iv) Notes to Unaudited Condensed Consolidated Financial StatementsX
104Cover Page Interactive Data File (formatted as Inline XBRL and Contained in Exhibit 101)X
Exhibit
Number		Exhibit DescriptionFormDate of
First Filing		Exhibit NumberFiled
Herewith
2.1#8-KJuly 1, 20202.1
3.18-KJuly 16, 20203.1
10.18-KApril 22, 202010.1
10.2^10-QMay 6, 202010.7
10.3^8-KJuly 1, 202010.1
10.4DEF
14A		April 9, 2020App-
endix B
10.5DEF
14A		April 9, 2020App-
endix C
10.68-KMay 28, 202010.3
31.1X
31.2X
32.1*X
32.2*X
101The following financial statements from the Company's 10-Q for the fiscal quarter ended June 30, 2020, formatted in inline XBRL: (i) Unaudited Condensed Consolidated Balance Sheets, (ii) Unaudited Condensed Consolidated Statements of Comprehensive Income, (iii) Unaudited Condensed Consolidated Statements of Stockholders' Equity; (iv) Unaudited Condensed Consolidated Statements of Cash Flows, and (v) Notes to Unaudited Condensed Consolidated Financial StatementsX
104Cover Page Interactive Data File (formatted as Inline XBRL and Contained in Exhibit 101)X
____________________________
#Schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. Blucora, Inc. hereby undertakes to furnish supplemental copies of any of the omitted schedules and exhibits upon request by the Securities and Exchange Commission.
^ Certain portions of the exhibit have been omitted.
*The certifications attached as Exhibits 32.1 and 32.2 are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of Blucora, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such filing.
44Blucora, Inc. | Q2 2020 Form 10-Q 48

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. 
BLUCORA, INC.
By:/s/ Davinder AthwalMarc Mehlman
 Davinder AthwalMarc Mehlman
Chief Financial Officer
(On behalf of the Registrant and as
Principal Financial Officer)
Date:November 6, 2019August 5, 2020

45Blucora, Inc. | Q2 2020 Form 10-Q 49