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BCOR Blucora

Filed: 5 May 21, 6:38am

Exhibit 99.2
Blucora, Inc.
Supplemental Information
March 31, 2021
Table of Contents
 
Financial Information
Consolidated Statements of Operations (Unaudited)
Reconciliation of Certain Non-GAAP Financial Measure to the Nearest Applicable GAAP Measures
Operating Metrics
Tax Software (1)
____________________________
(1)Quantitative information on the number of consumer e-files, professional tax software e-files, professional units sold, and professional e-files per unit sold has been excluded from the Supplemental Information this quarter because we do not view the comparison of these metrics to prior quarters as meaningful in light of the extension of the filing and payment deadline for tax year 2020 federal tax returns from April 15, 2021 to May 17, 2021, as well as the extension of the federal filing and payment deadlines to mid-June for Texas, Louisiana, and Oklahoma.



Blucora Consolidated Statements of Operations (Unaudited)
(in thousands except %s and per share amounts, rounding differences may exist)201920202021
FY 12/311Q2Q3Q4QFY 12/311Q
Segment revenue:
Wealth Management$507,979 $144,989 $115,884 $135,932 $149,384 $546,189 $154,491 
Tax Software209,966 118,331 45,238 39,421 5,773 208,763 123,892 
Total segment revenue717,945 263,320 161,122 175,353 155,157 754,952 278,383 
Operating expenses:
Cost of revenue:
Wealth Management352,081 102,342 83,868 96,122 103,630 385,962 108,623 
Tax Software10,691 4,013 3,054 2,692 2,569 12,328 5,578 
Total segment cost of revenue362,772 106,355 86,922 98,814 106,199 398,290 114,201 
Engineering and technology30,931 8,515 7,377 6,007 5,359 27,258 7,128 
Sales and marketing126,205 79,710 40,057 31,018 26,833 177,618 77,562 
General and administrative78,529 24,728 20,200 18,605 18,625 82,158 24,685 
Depreciation5,479 1,796 1,675 1,874 1,948 7,293 2,300 
Amortization of other acquired intangible assets37,357 7,748 6,673 7,746 7,578 29,745 7,175 
Impairment of goodwill and an intangible asset (1)
50,900 270,625 — — — 270,625 — 
Acquisition and integration25,763 5,682 2,824 10,276 12,303 31,085 8,103 
Total operating expenses717,936 505,159 165,728 174,340 178,845 1,024,072 241,154 
Operating income (loss)(241,839)(4,606)1,013 (23,688)(269,120)37,229 
Other loss, net(16,915)(6,135)(5,288)(11,963)(7,918)(31,304)(7,883)
Income (loss) before income taxes(16,906)(247,974)(9,894)(10,950)(31,606)(300,424)29,346 
Income tax benefit (expense)65,054 (67,520)59,539 (15,256)(19,094)(42,331)(1,700)
Net income (loss)$48,148 $(315,494)$49,645 $(26,206)$(50,700)$(342,755)$27,646 
Net income (loss) per share
Basic$1.00 $(6.60)$1.04 $(0.55)$(1.05)$(7.14)$0.57 
Diluted$0.98 $(6.60)$1.03 $(0.55)$(1.05)$(7.14)$0.56 
Weighted average shares outstanding:
Basic48,264 47,827 47,941 48,039 48,107 47,978 48,261 
Diluted49,282 47,827 48,092 48,039 48,107 47,978 49,097 
____________________________
(1)In the first quarter of 2020, we recognized a $270.6 million goodwill impairment related to our Wealth Management reporting unit. In the third quarter of 2019, we recognized a $50.9 million impairment of an intangible asset related to the HD Vest trade name intangible asset.















2


Blucora Consolidated Financial Results (Unaudited) (1)
(in thousands except %s and per share amounts, rounding differences may exist)201920202021
FY 12/311Q2Q3Q4QFY 12/311Q
Segment revenue:
Wealth Management (1)
$507,979 $144,989 $115,884 $135,932 $149,384 $546,189 $154,491 
Tax Software (2)
209,966 118,331 45,238 39,421 5,773 208,763 123,892 
Total segment revenue$717,945 $263,320 $161,122 $175,353 $155,157 $754,952 $278,383 
Segment operating income: (3)
Wealth Management (1)
$68,292 $22,598 $11,731 $17,498 $20,368 $72,195 $19,396 
Tax Software (2)
96,249 37,753 6,659 16,234 (11,025)49,621 50,888 
Total segment operating income$164,541 $60,351 $18,390 $33,732 $9,343 $121,816 $70,284 
Segment operating income % of revenue:
Wealth Management (1)
13 %16 %10 %13 %14 %13 %13 %
Tax Software (2)
46 %32 %15 %41 %(191)%24 %41 %
Total segment operating income % of revenue23 %23 %11 %19 %%16 %25 %
Unallocated corporate-level general and administrative expenses (3)
$27,361 $7,016 $5,810 $6,745 $7,118 $26,689 $5,694 
Adjusted EBITDA (4)
$137,180 $53,335 $12,580 $26,987 $2,225 $95,127 $64,590 
Other unallocated corporate-level operating expenses: (3)
Stock-based compensation$16,300 $(1,201)$3,904 $4,517 $2,846 $10,066 $5,610 
Acquisition and integration—Excl. change in fair value of acquisition-related contingent consideration25,763 5,682 2,824 11,276 3,003 22,785 1,803 
Acquisition and integration—Change in fair value of acquisition-related contingent consideration— — — (1,000)9,300 8,300 6,300 
Depreciation6,851 2,420 2,412 2,620 2,710 10,162 3,243 
Amortization of acquired intangible assets37,357 7,748 6,673 7,746 7,578 29,745 7,175 
Executive transition costs— 9,184 636 405 476 10,701 — 
Headquarters relocation costs— 716 737 410 — 1,863 — 
Contested proxy and other legal and consulting costs— — — — — — 3,230 
Impairment of goodwill and intangible asset50,900 270,625 — — — 270,625 — 
Operating income (loss)$$(241,839)$(4,606)$1,013 $(23,688)$(269,120)$37,229 
Unallocated other (income) loss, net: (3)
Interest expense$19,017 $5,316 $4,840 $7,254 $7,160 $24,570 $7,183 
Amortization of debt issuance costs1,042 313 331 362 366 1,372 363 
Accretion of debt discounts228 68 70 276 279 693 277 
Total interest expense$20,287 $5,697 $5,241 $7,892 $7,805 $26,635 $7,823 
Interest income(449)(14)(11)(2)(38)(65)(2)
Gain on sale of a business(3,256)— — (349)— (349)— 
Non-capitalized debt issuance expenses— — — 3,687 — 3,687 — 
Other (income) loss, net333 452 58 735 151 1,396 62 
Total other loss, net$16,915 $6,135 $5,288 $11,963 $7,918 $31,304 $7,883 
Income (loss) before income taxes$(16,906)$(247,974)$(9,894)$(10,950)$(31,606)$(300,424)$29,346 
Income tax (benefit) expense:
Cash$3,564 $483 $158 $269 $362 $1,272 $1,969 
Non-cash (5)
(68,618)67,037 (59,697)14,987 18,732 41,059 (269)
Total income tax (benefit) expense$(65,054)$67,520 $(59,539)$15,256 $19,094 $42,331 $1,700 
GAAP net income (loss)$48,148 $(315,494)$49,645 $(26,206)$(50,700)$(342,755)$27,646 
GAAP net income (loss) per share - diluted$0.98 $(6.60)$1.03 $(0.55)$(1.05)$(7.14)$0.56 
Non-GAAP net income (loss) (4)
$104,198 $43,561 $4,463 $15,055 $(8,999)$54,080 $50,952 
Non-GAAP net income (loss) per share - diluted (4) (6)
$2.11 $0.90 $0.09 $0.31 $(0.19)$1.12 $1.04 
Basic weighted average shares outstanding48,264 47,827 47,941 48,039 48,107 47,978 48,261 
Diluted weighted average shares outstanding49,282 47,827 48,092 48,039 48,107 47,978 49,097 
Notes to Consolidated Financial Results on next page
3


Notes to Consolidated Financial Results

(1)The operations of 1st Global are included in the Company's operating results as part of the Wealth Management segment beginning May 6, 2019 when 1st Global was acquired. The operations of HKFS are included in the Company's operating results as part of the Wealth Management segment beginning July 1, 2020 when HKFS was acquired.
(2)As a highly seasonal business, almost all of the Tax Software revenue is typically generated in the first two quarters of the calendar year. In March 2020 and as a result of the COVID-19 pandemic, the Internal Revenue Service (the "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 Software segment revenue and segment income that is usually earned in the first and second quarters of 2020 to the third quarter of 2020. As a result of the continued impact of the COVID-19 pandemic, the IRS delayed the start of the 2021 tax season and extended the filing and payment deadline for tax year 2020 federal tax returns from April 15, 2021 to May 17, 2021. In addition, the IRS extended the federal filing and payment deadline for Texas, Louisiana, and Oklahoma to mid-June.We expect that these events will result in the shifting of a significant portion of Tax Software segment revenue and segment income that would typically have been expected to be earned in the first quarter of 2021 to the second quarter of 2021.
(3)We do not allocate certain general and administrative costs (including personnel and overhead costs), stock-based compensation, depreciation, amortization of acquired intangible assets, acquisition and integration costs, executive transition costs, headquarters relocation costs, contested proxy and other legal and consulting costs, impairment of goodwill and an intangible asset, other income/loss, or income taxes to the reportable segments. General and administrative costs are included in "Unallocated corporate operating expenses."
(4)Non-GAAP measure. See Reconciliation of Certain Non-GAAP Financial Measures to the Nearest Applicable GAAP Measures on page 5 for additional information.
(5)Amounts represent the non-cash portion of income taxes. We exclude the non-cash portion of income taxes because of our ability to offset a substantial portion of our cash tax liabilities by using deferred tax assets, which consist primarily of U.S. federal net operating losses. The majority of these net operating losses will either be utilized or expire between 2021 and 2024.
(6)For periods in which non-GAAP net income is generated, non-GAAP net income per share is calculated using diluted weighted average shares outstanding. For periods in which non-GAAP net loss is generated, non-GAAP net loss per share is calculated using basic weighted average shares outstanding.
4


Blucora Reconciliation of Certain Non-GAAP Financial Measures to the Nearest Applicable GAAP Measures (1) (2)
 201920202021
(in thousands except per share amounts, rounding differences may exist)FY 12/311Q2Q3Q4QFY 12/311Q
Adjusted EBITDA
Net income (loss) (1) (2)
$48,148 $(315,494)$49,645 $(26,206)$(50,700)$(342,755)$27,646 
Stock-based compensation16,300 (1,201)3,904 4,517 2,846 10,066 5,610 
Depreciation and amortization of acquired intangible assets44,208 10,168 9,085 10,366 10,288 39,907 10,418 
Other loss, net16,915 6,135 5,288 11,963 7,918 31,304 7,883 
Acquisition and integration—Excluding change in fair value of HKFS Contingent Consideration25,763 5,682 2,824 11,276 3,003 22,785 1,803 
Acquisition and integration—Change in fair value of HKFS Contingent Consideration— — — (1,000)9,300 8,300 6,300 
Executive transition costs— 9,184 636 405 476 10,701 — 
Headquarters relocation costs— 716 737 410 — 1,863 — 
Contested proxy and other legal and consulting costs— — — — — — 3,230 
Income tax (benefit) expense(65,054)67,520 (59,539)15,256 19,094 42,331 1,700 
Impairment of goodwill and an intangible asset50,900 270,625 — — — 270,625 — 
Adjusted EBITDA$137,180 $53,335 $12,580 $26,987 $2,225 $95,127 $64,590 
Non-GAAP Net Income (Loss)
Net income (loss) (1) (2)
$48,148 $(315,494)$49,645 $(26,206)$(50,700)$(342,755)$27,646 
Stock-based compensation16,300 (1,201)3,904 4,517 2,846 10,066 5,610 
Amortization of acquired intangible assets37,357 7,748 6,673 7,746 7,578 29,745 7,175 
Impairment of goodwill and an intangible asset50,900 270,625 — — — 270,625 — 
Gain on the sale of a business(3,256)— — (349)— (349)— 
Acquisition and integration—Excluding change in fair value of HKFS Contingent Consideration25,763 5,682 2,824 11,276 3,003 22,785 1,803 
Acquisition and integration—Change in fair value of HKFS Contingent Consideration— — — (1,000)9,300 8,300 6,300 
Executive transition costs— 9,184 636 405 476 10,701 — 
Headquarters relocation costs— 716 737 410 — 1,863 — 
Contested proxy and other legal and consulting costs— — — — — — 3,230 
Non-capitalized debt issuance expenses— — — 3,687 — 3,687 — 
Cash tax impact of adjustments to GAAP net income(2,396)(736)(259)(418)(234)(1,647)(543)
Non-cash income tax (benefit) expense(68,618)67,037 (59,697)14,987 18,732 41,059 (269)
Non-GAAP net income (loss)$104,198 $43,561 $4,463 $15,055 $(8,999)$54,080 $50,952 
Non-GAAP net income (loss) per share (3)
$2.11 $0.90 $0.09 $0.31 $(0.19)$1.12 $1.04 
Weighted average shares outstanding (3)
49,282 48,253 48,092 48,203 48,107 48,244 49,097 
 







Notes to Reconciliations of Certain Non-GAAP Financial Measures to the Nearest Comparable GAAP Measures on next page
5


Notes to Reconciliations of Certain Non-GAAP Financial Measures to the Nearest Comparable GAAP Measures

(1) We define Adjusted EBITDA as net income (loss), determined in accordance with GAAP, excluding the effects of stock-based compensation, depreciation and amortization of acquired intangible assets, other loss, net, acquisition and integration costs, impairment of goodwill and an intangible asset, executive transition costs, headquarters relocation costs, contested proxy and other legal and consulting costs, and income tax (benefit) expense. Other loss, net primarily constitutes our interest expense, net of interest income. Acquisition and integration costs relate to the acquisition of HKFS and the acquisition of 1st Global. The impairment of goodwill relates to the impairment of our Wealth Management reporting unit goodwill in the first quarter of 2020. The impairment of an intangible asset relates to the impairment of the HD Vest trade name intangible asset in the third quarter of 2019. Executive transition costs relate to the departure of certain company executives in the first quarter of 2020. Headquarters relocation costs relate to the process of moving from our former 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 excluded 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.

We define non-GAAP net income as net income (loss), determined in accordance with GAAP, excluding the effects of stock-based compensation, amortization of acquired intangible assets, acquisition and integration costs, impairment of goodwill and an intangible asset, executive transition costs, headquarters relocation costs, contested proxy and other legal and consulting costs, non-capitalized debt issuance expenses, the related cash tax impact of those adjustments, and non-cash income tax (benefit) expense. We exclude the non-cash portion of income taxes 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 either be utilized or expire between 2021 and 2024. Gain on the sale of a business relates to the disposition of SimpleTax in the third quarter of 2019 and the subsequent working capital adjustment in the third quarter of 2020. Non-capitalized debt issuance expense relates to the expense recognized as a result of the increase to our term loan.

We believe that non-GAAP net income and non-GAAP net income per share provide meaningful supplemental information to management, investors, and analysts regarding our performance and the valuation of our business 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 and non-GAAP net income per share are common measures used by investors and analysts to evaluate our performance and the valuation of our business. Non-GAAP net income and non-GAAP net income 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 a substitute for or superior to, GAAP net income (loss) and net income (loss) per share. Other companies may calculate non-GAAP net income and non-GAAP net income per share differently, and, therefore, our non-GAAP net income and non-GAAP net income per share may not be comparable to similarly titled measures of other companies.

(2) As presented in the Blucora Consolidated Financial Results (unaudited) on page 3.

(3) For periods in which non-GAAP net income is generated, non-GAAP net income per share is calculated using diluted weighted average shares outstanding. For periods in which non-GAAP net loss is generated, non-GAAP net loss per share is calculated using basic weighted average shares outstanding.

6


Blucora Net Leverage Ratio
 201920202021
(in thousands except ratio, rounding differences may exist)4Q1Q2Q3Q4Q1Q
DEBT:
Senior secured credit facility$399,687 $444,375 $389,062 $563,609 $563,156 $562,703 
CASH:
Cash and cash equivalents$80,820 $168,198 $90,081 $151,166 $150,125 $191,803 
NET DEBT (1)
$318,867 $276,177 $298,981 $412,443 $413,031 $370,900 
Last twelve months:
SEGMENT INCOME:
Wealth Management$68,292 $79,350 $74,102 $70,969 $72,195 $68,993 
Tax Software96,249 54,730 20,021 48,330 49,621 62,756 
$164,541 $134,080 $94,123 $119,299 $121,816 $131,749 
Unallocated corporate-level general and administrative expenses(27,361)(27,272)(26,861)(27,130)(26,689)(25,367)
ADJUSTED EBITDA (2)
$137,180 $106,808 $67,262 $92,169 $95,127 $106,382 
NET LEVERAGE RATIO (2) (3)
2.3 x2.6 x4.4 x4.5 x4.3 x3.5 x

Blucora Reconciliation of Trailing Twelve Month ("TTM") Adjusted EBITDA (2) (4)

 201920202021
(in thousands except per share amounts, rounding differences may exist)TTM 4QTTM 1QTTM 2QTTM 3QTTM 4QTTM 1Q
Adjusted EBITDA
Net income (loss)$48,148 $(329,516)$(310,907)$(274,727)$(342,755)$385 
Stock-based compensation16,300 12,656 12,478 12,356 10,066 16,877 
Depreciation and amortization of acquired intangible assets44,208 45,022 43,276 41,749 39,907 40,157 
Other loss, net16,915 19,092 19,262 28,619 31,304 33,052 
Acquisition and integration—Excluding change in fair value of HKFS Contingent Consideration25,763 29,648 23,289 27,806 22,785 18,906 
Acquisition and integration—Change in fair value of HKFS Contingent Consideration— — — (1,000)8,300 14,600 
Executive transition costs— 9,184 9,820 10,225 10,701 1,517 
Headquarter relocation costs— 716 1,453 1,863 1,863 1,147 
Contested proxy and other legal and consulting costs— — — — — 3,230 
Income tax (benefit) expense(65,054)(1,519)(52,934)(25,347)42,331 (23,489)
Impairment of goodwill and an intangible asset50,900 321,525 321,525 270,625 270,625 — 
Adjusted EBITDA$137,180 $106,808 $67,262 $92,169 $95,127 $106,382 
____________________________
(1) We define net debt, a non-GAAP financial measure, as cash and cash equivalents less the outstanding principal of debt. Management believes that the presentation of this non-GAAP financial measure provides useful information to investors because it is an important liquidity measurement that reflects our ability to service our debt.
(2) Non-GAAP measure using Adjusted EBITDA for the last twelve months. Adjusted EBITDA for the trailing twelve month period is reconciled to the nearest GAAP measure on this page.
(3) Net leverage ratio is calculated by dividing net debt by Adjusted EBITDA for the trailing twelve months.
(4) For additional information on Adjusted EBITDA and its use as a non-GAAP measure, see page 6.

7


Blucora Reconciliation of Operating Free Cash Flow (1)
 201920202021
(in thousands, rounding differences may exist)FY 12/311Q2Q3Q4QFY 12/311Q
Net cash provided by (used in) operating activities$92,804 $46,864 $(12,490)$940 $8,765 $44,079 $53,722 
Purchases of property and equipment(10,501)(7,715)(11,357)(9,639)(7,291)(36,002)(8,598)
Operating free cash flow$82,303 $39,149 $(23,847)$(8,699)$1,474 $8,077 $45,124 
____________________________
(1) We define operating free cash flow, which is a non-GAAP measure, as net cash provided by (used in) operating activities less purchases of property and equipment. We believe operating free cash flow is an important liquidity measure that reflects the cash generated by our businesses, after the purchases of property and equipment, that can then be used for, among other things, strategic acquisitions and investments in the businesses, stock repurchases, and funding ongoing operations.
8


Blucora Operating Metrics - Wealth Management
201920202021
(in thousands except %s, rounding differences may exist)FY 12/311Q2Q3Q4QFY 12/311Q
Segment revenue$507,979 $144,989 $115,884 $135,932 $149,384 $546,189 $154,491 
Less: Financial professional commission payout$(348,003)$(100,804)$(82,656)$(94,794)$(102,610)$(380,864)$(107,211)
Segment net revenue (1)
$159,976 $44,185 $33,228 $41,138 $46,774 $165,325 $47,280 
Segment income (2)
$68,292 $22,598 $11,731 $17,498 $20,368 $72,195 $19,396 
Segment income % of revenue13 %16 %10 %13 %14 %13 %13 %
Segment income % of net revenue43 %51 %35 %43 %44 %44 %41 %
(in thousands except %s, rounding differences may exist)201920202021
Sources of RevenuePrimary DriversFY 12/311Q2Q3Q4QFY 12/311Q
Financial professional-drivenAdvisory- Advisory asset levels$252,367 $78,757 $66,303 $82,612 $87,079 $314,751 $91,119 
Commission- Transactions
- Asset levels
- Product mix
191,050 50,580 39,836 44,921 49,864 185,201 52,534 
Other revenueAsset-based- Cash balances
- Interest rates
- Number of accounts
- Client asset levels
48,182 10,579 3,981 4,351 4,777 23,688 5,329 
Transaction and fee- Account activity
- Number of clients
- Number of financial professionals
- Number of accounts
16,380 5,073 5,764 4,048 7,664 22,549 5,509 
Total revenue$507,979 $144,989 $115,884 $135,932 $149,384 $546,189 $154,491 
Total recurring revenue (3)
$422,128 $119,255 $100,004 $117,822 $127,863 $464,944 $130,755 
Recurring revenue rate (3)
83.1 %82.3 %86.3 %86.7 %85.6 %85.1 %84.6 %
____________________________
(1) Non-GAAP financial measure represents segment revenue less financial professional commission payout.
(2) Excludes expenses associated with non-recurring projects.
(3) Recurring revenue consists of trailing commissions, advisory fees, fees from cash sweep programs, and certain transaction and fee revenue.
9


Blucora Operating Metrics - Wealth Management (continued)
(in thousands except %s and as otherwise indicated, rounding differences may exist)201920202021
FY 12/311Q2Q3Q4QFY 12/311Q
Total client assets$70,644,385 $61,014,454 $68,519,998 $76,152,721 $82,961,244 $82,961,244 $84,776,191 
Brokerage assets$43,015,221 $37,395,490 $41,964,610 $43,733,735 $47,357,687 $47,357,687 $48,001,320 
Advisory assets$27,629,164 $23,618,964 $26,555,388 $32,418,986 $35,603,557 $35,603,557 $36,774,871 
% of total client assets39.1 %38.7 %38.8 %42.6 %42.9 %42.9 %43.4 %
Number of financial professionals (in ones) (1)
3,984 3,945 3,862 3,975 3,770 3,770 3,718 
Advisory and commission revenue per financial professional (2)
$111.3 $32.8 $27.5 $32.1 $36.3 $111.3 $38.6 
Quarterly production retention rate: (3)
Financial professional-driven revenue (4)
$443,417 $495,837 $492,498 $491,829 $499,952 $499,952 $514,268 
Financial professional-driven revenue related to independent financial professionals who departed in the quarter (4)
$10,770 $4,586 $11,445 $5,366 $19,101 $19,101 $8,127 
Financial professional-driven revenue, less that related to independent financial professionals who departed in the quarter (4)
$432,647 $491,251 $481,053 $486,463 $480,851 $480,851 $506,141 
Quarterly production retention rate (3)
97.6 %99.1 %97.7 %98.9 %96.2 %96.2 %98.4 %
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(1) The increase in financial professionals in the third quarter of 2020 resulted from the addition of 19 in-house financial professionals (licensed financial planning consultants, which are employees of HKFS) and 131 licensed referring representatives at CPA firms that partner with HKFS.
(2) Full year advisory and commission revenue per financial professional is based upon a full year of advisory and commission revenue.
(3) Quarterly production retention rate is a newly-disclosed business metric and non-GAAP financial measure. We believe quarterly production retention rate is an important measure of our quarterly retention of financial professional-driven revenue (which consists of advisory revenue and commission revenue). Management uses quarterly production retention rate to measure the impact of financial professional departures on our business. Quarterly production retention rate is calculated by subtracting (a) financial professional-driven revenue for the trailing-twelve-month period then ended related to independent financial professionals that departed in the quarter from (b) total financial professional-driven revenue for the trailing-twelve-month period then ended, and then dividing the difference by (c) total financial professional-driven revenue for the trailing-twelve-month period then ended. As quarterly production retention rate is a measure of retention during a quarter, it also includes quarterly production from independent financial professionals who departed in prior quarters in the trailing-twelve-month period, and therefore does not show production retention rate over longer periods of time.
(4) For the trailing-twelve-month period then ended.



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