A N N U A L R E P O R T T O S T O C K H O L D E R S
2 0 1 7
N O T I C E O F A N N U A L M E E T I N G
2 0 1 8 P R O X Y S T A T E M E N T
A N N U A L R E P O R T O N F O R M 1 0 - K
F O R T H E Y E A R E N D E D D E C E M B E R 3 1 , 2 0 1 7
6333 North State Highway 161, 4th Floor
Irving, Texas 75038
To My Fellow Shareholders,
2017 was a strong year for Blucora, and I am very proud of all that our team has achieved. As you will see in our Proxy
Statement, we are asking stockholders for approval on important proposals that are key to our success going forward,
such as the approval of our new long-term incentive plan and an amendment to our Certificate of Incorporation that
allows our Board to set the size of the Board between six and 15 directors, and I ask for your vote “FOR” each of the
proposals in the Proxy.
Before we get to the detail of the Proxy, I wanted to give you some detail about our success in 2017 and why we believe
we have earned the trust of your vote in favor of our ballot measures. In my letter last year, I shared my belief that we
were well positioned to continue our momentum into 2017. I’m pleased to say that we did just that, and celebrated a
series of impressive milestones, including:
• Growing revenue by 12%, net income per share by 137%, and non-GAAP EPS* by 38%;
•
Surpassing our net leverage goal by paying down more than $90 million in debt and reducing our net leverage
to 2.8 times (vs. 4.0x at end of 2016 and 6.3x at time of the HD Vest acquisition);
• Growing total HD Vest assets under administration, or AUA, by 14% to $44 billion and advisory assets under
management, or AUM, by 21% to $12.5 billion - both record levels; and
Achieving our 20th consecutive year of revenue growth at TaxAct, growing 15%.
•
We achieved these impressive results thanks in large part to the highly focused Four Ds strategy we established in
2016 to guide us forward after the HD Vest acquisition. That strategy focused our team on:
•
•
•
•
Divesting our legacy businesses in Infospace and Monoprice (achieved 2016);
De-levering and reducing our net leverage ratio from 6.3x to at least 3x (achieved 2017);
Delivering on our financial commitments (ongoing); and
Developing long-term business plans to drive growth and maximize value (ongoing).
Achieving our net leverage or ‘de-lever’ goal in 2017 followed our ‘divest’ achievement in 2016 when we sold Infospace
and Monoprice. While we have been ‘driving’ growth and ‘delivering’ on our financial commitments, we consider those
to be a constant focus. This enabled us to turn our attention in 2017 to clearly laying out our long-term vision and
strategy for the future - unlocking sustained shareholder value creation by better serving our targeted customers and
advisors.
Like every effective growth strategy, we began by establishing the core beliefs that set the frame of our long-term
strategy. We believe that taxes are the absolute key to better outcomes, since they are such a large expense and
optimizing taxes must be more than a once-a-year event. Yet today people remain vastly underserved - often at the
peril of their financial futures. The tax preparation industry focuses consumers on maximizing the refund. This reactive
approach ignores what should be the most important goals of minimizing taxes, increasing cash flows and enabling
better long term after-tax outcomes, so people can do more in their lives. On top of this reactive and outdated approach,
the overall wealth management industry virtually ignores taxes and refers clients to another service provider when
there is a tax consideration. These approaches have left consumers without a holistic service approach to their financial
future … until now.
Blucora bridges the gap between tax and wealth management. We have a unique opportunity before us to disrupt
these decades-long outdated approaches. We can leverage the information naturally generated by filing taxes to
enable people, over their financial lives, to achieve their goals, uncovering opportunities their advisors would otherwise
miss. Make no mistake, Blucora is leading the next major innovation in financial management, maximizing after-tax
risk-adjusted financial returns - which is what all of us will live off of - in reality - in our retirement.
After the success of 2017, and as we focus on our vision of unlocking sustained value for shareholders and customers
alike, we will focus our 2018 efforts on our new strategic plan. Building on the Four D’s approach, our new strategic
pillars line up with ABCD.
•
•
•
•
A - Accelerate Growth. We will execute on our significant organic growth opportunities, create clear competitive
differentiation and value in each business, and capture the synergies that exist between the two.
B - Build Tax-Smart Leadership. We are competitively positioned - at the intersection of tax and wealth
management - to deliver better outcomes to customers.
C - Create One Blucora. We are no longer a holding company of unrelated businesses. We are one company
focused on sharing our expertise and driving efficiencies anchored in a common culture. We are on our way
to building a high-performance organization, as part of this culture.
D - Deliver Results. While we have evolved from the Four D’s, we will retain our sharp focus on delivering on
our commitments to shareholders, customers and advisors.
These pillars will guide us as we work to accelerate growth in 2018. They will also guide how we look to grow the two
segments of our business. As I’ve mentioned, we believe our future sits at the intersection of the tax and wealth
management - and that’s where our growth opportunity is. We’ve only scratched the surface on our opportunity, with
so much more we can do. This prospect makes us all excited about the future we can create.
Wealth Management
HD Vest is a strong business with what we believe to be a vast amount of organic growth opportunities on the horizon.
And as the largest broker-dealer focused on tax-smart investing, we have a competitive advantage in the marketplace.
We’ve leveraged this advantage to grow the business, and I’m proud of the progress we made in 2017.
From a performance standpoint, HD Vest set a number of records in 2017. Total assets under administration increased
14% year-over-year to $44 billion - a new record. Advisory assets under management were up 21% year-over-year
to $12.5 billion - also a new record. Net inflows into AUM were about $800 million in 2017, and AUM as a percent of
AUA increased to 28.4%, up about 150 basis points from the year ago quarter and also hitting a high-water mark.
Last year, as part of our shift to focus on advisor productivity rather than total number of advisors, we began using
predictive models in advisor recruitment. This enabled us to better identify which tax professionals are most likely to
be successful as HD Vest wealth management advisors. Additionally, we started a strategic and targeted reduction of
non-engaged advisors who account for virtually no clients and assets. This process, which has resulted in the reduction
of about 300 advisors, remains an ongoing one as we optimize our advisor base.
2017 also saw great progress in our transition to a new clearing partner, which we expect to complete by the third
quarter of 2018. We expect this will be a great win for end-clients, advisors and Blucora. This change will enable us
to achieve better capture of interest income in a rising rate cycle, be able to capitalize on new capabilities such as
highly-integrated business processing, data aggregation and a world-class client portal, and we’ll have the opportunity
to bring direct-to-fund (DTF) assets fully on our platform over time. In total, we expect the new clearing arrangement
to be accretive to the tune of $60-100 million or more in segment income over 10 years, which can both drop to the
bottom line as well as enable acceleration in growth.
Tax Preparation
As we look at the tax side of our business in 2017, we invested in our platform and capabilities to provide more long-
term value for our customers. We are enabling speed, efficiency and growth through investing in our technology,
infrastructure and people. In 2017, we made great strides in these efforts by:
• Migrating IT infrastructure to the cloud;
•
• Growing investments in data-driven technologies, tools and platforms to personalize and optimize, as well as
Upgrading our operations and support technology;
being vigilant around cybersecurity; and
Enhancing our data and analytics, while improving marketing effectiveness.
•
TaxAct finished the year with revenue of $160.9 million, up 15% versus last year and these investments will help lay
the groundwork for continued future growth.
In addition to investing for growth, we’re focused on restoring unit momentum in this business by focusing on monetized
units, with efforts in four key areas:
•
•
•
Targeting high potential segments in the growing Digital DIY market, activated through new marketing and
improved filer experiences;
Transparent pricing, with marketable price-value advantages versus the larger players; and
Diversifying revenue by extending our relationship with filers, leveraging the insight we can gain, with consent,
from the tax form - through partners as well as by leveraging our HD Vest unit.
As I mentioned earlier, Blucora uniquely sits at the intersection of tax and wealth management. To that end, we have
made significant strides in creating a cross-serve engine within the TaxAct experience for the benefit of our clients.
We launched the BluPrint™ financial assessment, developed in partnership with HD Vest, which turns insights from
a tax return into actionable recommendations designed to improve the filers’ financial situation. We take dozens of
data points within the 1040 to offer financial insights and suggestions, all focused on helping customers save on their
taxes, lessen their debt burdens and improve their future financial health. We believe we can help the average U.S.
filer save thousands of dollars with the insights and solutions we provide. This year, and we believe this is only the
beginning, we enabled our customers to access product partnerships where they could reduce their taxes, reduce
student debt or get a better deal on consumer debt, manage risk through adding life insurance at a competitive rate
or generate more interest on their money through a high-yield deposit account.
We believe we are the only online tax software company that offers this type of insight and guidance into the financial
health of our customers and provides comprehensive solutions which can save customers real money now and for
years to come. For the nominal cost of using our tax filing software, we can give the customer ways to save thousands
of dollars - we believe this is a phenomenal value creation opportunity. While we will look to deepen all our relationships
and product integration with our partners, we believe these relationships can become a template for us in future tax
seasons.
Conclusion
As I look back at 2017, we have successfully completed an unprecedented multi-year transformation. This includes
executing on our 4-D’s initiative and the initiatives each of our businesses have undertaken to drive growth and better
serve customers. Our financial results clearly show our momentum, with double-digit revenue growth, a strengthened
balance sheet, growth in key metrics at HD Vest and continued product development and partnership progress at Tax
Act.
I also want to note, and again welcome, our new independent directors. Bill Atwell, the former President of Cigna’s
international business; Mac Gardner, the former Head of Americas Region and Global Bank Group, Private Client for
Merrill Lynch; Georganne Proctor, the former Chief Financial Officer of TIAA-CREF and Steven Aldrich, Chief Product
Officer at GoDaddy, Inc., who joined us in 2017. Their experience and knowledge further strengthen our outstanding
Board of Directors. I want to thank them all for joining us and thank all the members of our Board for the key role they
all play in helping the management team shape the future of Blucora.
With the strong foundation our transformation has created and our talented team, we have the tools and ability to
leverage our differentiated business model and capitalize on the significant growth opportunities we see ahead. Simply
put, I remain very optimistic about our future.
I’d like to thank our shareholders for the trust and confidence you place in us. And I thank our nearly 500 employees
for the hard work they put in every day to serve our customers and advisors, and grow our company.
Sincerely,
John S. Clendening
*See Annex A for a reconciliation of non-GAAP EPS to the nearest GAAP measure.
6333 North State Highway 161, 4th Floor
Irving, Texas 75038
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be held on June 7, 2018
TO THE STOCKHOLDERS:
Notice is hereby given that the annual meeting of stockholders of Blucora, Inc., a Delaware corporation, will be held
on June 7, 2018 at 2:00 p.m. Central Daylight Time in the Rosetta Room of the Hilton Anatole, 2201 North Stemmons
Freeway, Dallas, Texas 75207 for the following purposes:
1.
2.
3.
4.
5.
6.
To elect three Class I directors;
To ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for
2018;
To approve, on a non-binding advisory basis, the compensation of our Named Executive Officers, as disclosed
in this Proxy Statement;
To approve the Blucora, Inc. 2018 Long-Term Incentive Plan;
To approve an amendment to the Blucora, Inc. Restated Certificate of Incorporation to provide that the
number of directors of the Company shall be not less than six nor more than 15 directors; and
To transact such other business as may properly come before the meeting or any adjournment, postponement
or recess thereof.
The Board of Directors has fixed the close of business on April 9, 2018 as the record date for the determination of
stockholders entitled to notice of this meeting and the right to vote.
We have elected to deliver a Notice of Internet Availability of Proxy Materials, rather than sending a full set of proxy
materials (including this proxy statement and our Annual Report on Form 10-K for the year ended 2017) in the mail.
The Notice of Internet Availability was sent to stockholders on or about April 19, 2018, and the proxy materials were
made available on www.proxydocs.com/BCOR on the same day. For specific instructions regarding voting online, by
telephone, or by mail, please see the instructions in this Proxy Statement and on the Notice of Internet Availability of
Proxy Materials.
This Proxy Statement contains important information for you to consider when deciding how to vote on the matters
brought before the meeting. Please read it carefully.
By Order of the Board of Directors,
Ann J. Bruder
Chief Legal Officer and Secretary
Irving, TX
April 19, 2018
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THIS MEETING, PLEASE VOTE
ONLINE, BY TELEPHONE, OR SIGN, DATE, AND RETURN YOUR PROXY CARD (IF YOU RECEIVED ONE), OR
VOTE IN ACCORDANCE WITH THE INSTRUCTIONS SET FORTH ON YOUR VOTING INSTRUCTION CARD.
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Stockholders to be
held on June 7, 2018: This Notice of Annual Meeting and Proxy Statement, the Notice of Internet Availability
of Proxy Materials and the 2017 Annual Report are available at www.proxydocs.com/BCOR.
TABLE OF CONTENTS
PROXY STATEMENT SUMMARY
QUESTIONS AND ANSWERS REGARDING VOTING PROCEDURES AND OTHER
INFORMATION
PROPOSAL ONE - ELECTION OF DIRECTORS
PROPOSAL TWO – RATIFICATION OF
APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
PROPOSAL THREE – ADVISORY VOTE TO APPROVE THE COMPENSATION OF THE
COMPANY’S NAMED EXECUTIVE OFFICERS
PROPOSAL FOUR - APPROVAL OF THE BLUCORA, INC. 2018 LONG-TERM INCENTIVE
PLAN
EQUITY COMPENSATION PLANS
PROPOSAL FIVE - APPROVAL OF AMENDMENT TO THE BLUCORA, INC. RESTATED
CERTIFICATE OF INCORPORATION
INFORMATION REGARDING THE BOARD OF DIRECTORS
Director Information
Independence, Committee and Other Board Information
Director Nomination Process
Director Compensation
AUDIT COMMITTEE REPORT
FEES PAID TO INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TRANSACTIONS WITH RELATED PERSONS
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
INFORMATION REGARDING EXECUTIVE OFFICERS
COMPENSATION DISCUSSION AND ANALYSIS
Introduction
Executive Summary
Executive Compensation Best Practices
Compensation Philosophy
Compensation Decisions Made in 2017
Employment Agreements
2018 Compensation Changes
Compensation Policies and Practices
Risk Considerations in Our Compensation Programs
COMPENSATION COMMITTEE REPORT
COMPENSATION OF NAMED EXECUTIVE OFFICERS
Summary Compensation Table
2017 Grants of Plan-Based Awards
Outstanding Equity Awards at Fiscal Year End
2017 Option Exercises and Stock Vested
Pension Benefits; Non-Qualified Defined Contribution; and Other Non-Qualified
Deferred Compensation Plans
Potential Payments upon Termination or Change in Control
2017 EXECUTIVE PAY RATIO
BENEFICIAL OWNERSHIP
1
12
14
15
16
28
29
30
32
35
36
41
42
42
43
43
45
45
53
62
64
65
65
67
68
69
69
76
Section 16(a) Beneficial Ownership Reporting Compliance
Security Ownership of Certain Beneficial Owners and Management
Ownership Limitations
TRANSACTION OF OTHER BUSINESS
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS AND DIRECTOR
NOMINATIONS
ANNUAL REPORT TO STOCKHOLDERS
WHERE YOU CAN FIND MORE INFORMATION
ANNEX A - NON-GAAP RECONCILIATION
APPENDIX A - BLUCORA, INC. 2018 INCENTIVE PLAN
APPENDIX B - AMENDMENT TO RESTATED CERTIFICATE OF INCORPORATION
76
76
78
79
79
79
80
PROXY STATEMENT
for
2018 ANNUAL MEETING OF STOCKHOLDERS OF BLUCORA, INC.
June 7, 2018
PROXY STATEMENT SUMMARY
This summary highlights information contained elsewhere in this proxy statement. This summary does not contain all
of the information you should consider, and you should read the entire proxy statement before voting. For more complete
information regarding our 2017 performance, please review our Annual Report Form 10-K for the year ended
December 31, 2017.
Information About the Annual Meeting of Stockholders
The Board of Directors (the "Board" or "Board of Directors") of Blucora, Inc. (referred to throughout this proxy statement
as “Blucora," the “Company," we," "us," or "our") is soliciting proxies for the 2018 annual meeting of stockholders and
any adjournment, postponement or recess of such meeting.
Time and Date: 2:00 p.m., Central Daylight Time, on Thursday, June 7, 2018
Location:
The Rosetta Room of the Hilton Anatole, 2201 North Stemmons Freeway, Dallas, Texas 75207
Record Date:
April 9, 2018
Voting:
Each Share is entitled to one vote at the Annual Meeting
Proposals Included in this Proxy Statement and Recommendations for Voting
Management Proposals:
Proposal 1- Election of Directors
Board
Recommendation
"FOR" EACH
NOMINEE
Proposal 2 - Ratification of Appointment of Independent Registered Public
Accounting Firm for 2018
Proposal 3 - Advisory vote to approve the compensation of the Company's
Named Executive Officers
Proposal 4 - Approval of the Blucora, Inc. 2018 Long-Term Incentive Plan
Proposal 5 - Approval of Amendment to the Blucora, Inc. Restated Certificate of
Incorporation
FOR
FOR
FOR
FOR
For more
detail, see
page:
12
14
15
16
28
1
Financial and Business Information
We are a leading provider of technology-enabled financial solutions to consumers, small business owners, and tax
professionals. We offer our products and services in wealth management and tax preparation through HDV Holdings,
Inc. and its subsidiaries (“HD Vest”) and TaxAct, Inc. and its subsidiary (“TaxAct”), respectively, to help consumers to
manage their financial lives in a tax-smart manner.
2017 Financial Highlights
• 2017 was a strong year where we achieved double digit growth in nearly all of our key metrics while
significantly strengthening our balance sheet, our platform and our executive leadership team.
• We increased Total Revenue by 12% from 2016.
• We increased Net Income and Net Income per share by 141% and 137%, respectively, from 2016. (2)
• We increased non-GAAP Consolidated Adjusted EBITDA by 7% from 2016. (2)
• We increased non-GAAP EPS by 38% from 2016. (2)
• We grew assets under management by 21% from 2016 to $12.5 billion and total assets under administration by
14% from 2016 to $44.2 billion at HD Vest.
• We achieved the 20th consecutive year of revenue growth at TaxAct, growing 15% from 2016.
• During 2017, we lowered debt by $90 million, reduced net leverage ratio to 2.8x from 4.0x and lowered interest
rate by 300 bps.
• We announced a clearing firm transition that is expected to generate $60-$100 million in incremental HD Vest
segment income over a 10-year term.
2017 Business Highlights
• Since 2015 we have been successfully undergoing a strategic transformation into a technology-enabled
financial solutions company focused on wealth management and comprised of TaxAct and HD Vest and have
divested our Search and Content and E-Commerce businesses.
•
•
In connection with our strategic transformation and our operating as “One Company," during 2017, we
relocated our corporate headquarters from Bellevue, Washington to Irving, Texas.
In connection with this relocation and our strategic transformation, we had a leadership transition resulting in a
new executive team.
(1) Financial measures used in our annual bonus plan. See "Compensation Discussion and Analysis" for additional information.
(2) See Annex A - Non-GAAP Reconciliation for a reconciliation of Adjusted EBITDA and non-GAAP EPS to Net Income and Net
Income per share.
For information concerning risks, uncertainties and other factors that may cause our results to differ from those expressed
by any forward-looking statements in this proxy statement, please see “Cautionary Statement Regarding Forward-
Looking Statements” and “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2017.
2
Proposal 1 - Election of Class I Directors
We are asking you to vote to elect our three Class I Directors set forth below. At our 2017 annual meeting of stockholders,
our stockholders voted to approve the declassification of our Board of Directors over a three-year period beginning with
our 2018 annual meeting of stockholders. Each director is currently assigned to one of three classes. The Class I
directors up for election at our 2018 annual meeting will be elected for a one-year term. In 2019, the Class II directors
will be up for election and will be elected for a one-year term. In 2020, all members of our Board of Directors will be up
for election for a one-year term, and thereafter all directors will be elected annually. The Company’s Board of Directors
has set the size of the Board at eight members, and information about each of our directors, including our Director
Nominees for election at the annual meeting, is set forth below.
For additional information concerning this proposal and our Director Nominees, see “Proposal One—Election of
Directors” on page 12 of this Proxy Statement, and for additional information regarding our other directors, see
"Information Regarding the Board of Directors."
Name
Age
Director
Since
Class
of
Director
William L. Atwell, Chair
Steven Aldrich
John S. Clendening*
Lance G. Dunn*
67
48
55
55
2017
2017
2016
2012
H. McIntyre Gardner*
56
2017
Georganne C. Proctor
61
2017
Christopher W. Walters
44
2014
Mary S. Zappone
53
2015
II
II
I
I
I
III
II
III
Employment
Description
Managing
Director of
Atwell Partners
CPO of
GoDaddy
President &
CEO Blucora
Former Co-
Founder &
CEO of TaxAct
Private Investor
and former
Senior
Executive at
Merrill Lynch &
Co., Inc.
Former CFO of
TIAA-CREF
CEO of
Encompass
Digital Media,
Inc.
CEO of Brace
Industrial
Group
Indepen-
dent
Y
Y
N
Y
Y
Y
Y
Y
Board Committees
Comp-
ensation
Nominating
and
Governance
ü
Audit
ü
ü
Chair
Chair
ü
Chair
ü
ü
* Class I Directors who are nominated for re-election at the 2018 Annual Meeting of Stockholders.
Proposal 2 - Auditor Ratification
We are asking you to ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm
for 2018. Although a stockholder vote for this appointment is not required by law and is not binding on us, our Audit
Committee will take your vote on this proposal into consideration when appointing the independent registered public
accounting firm in the future.
For additional information concerning this proposal, see “Proposal Two—Ratification of Appointment of Independent
Registered Public Accounting Firm for 2018” on page 14 of this Proxy Statement, and for information concerning the
fees we paid to Ernst & Young LLP during 2017 and 2016, see “Fees Paid to Independent Registered Public Account
Firm for 2017 and 2016” on page 42 of this Proxy Statement.
3
Proposal 3 - Executive Compensation
We are asking you to approve, on a non-binding, advisory basis, the compensation of our Named Executive Officers
for 2017 as disclosed in the “Compensation Discussion and Analysis” and accompanying compensation tables and
related narrative discussion beginning on page 45. We believe that our Named Executive Officer compensation program
described throughout our “Compensation Discussion and Analysis” reflects an overall pay-for-performance culture that
is aligned with the interests of our stockholders. Our compensation programs are designed to provide a competitive
level of compensation necessary to attract, motivate and retain talented and experienced executives and reward our
named executive officers for the achievement of short- and long-term strategic and operational goals and the achievement
of increased total stockholder return, while at the same time avoiding the encouragement of unnecessary or excessive
risk-taking. In addition, we have implemented a number of executive compensation best practices and policies over the
last few years that we believe reflect sound governance that also promote the long-term interests of our stockholders.
For additional information concerning this proposal, see “Proposal Three—Advisory Vote to Approve the Compensation
of the Company's Named Executive Officers” beginning on page 15 of this Proxy Statement. In addition, please read
the information included in the Executive Compensation section of this Proxy Statement beginning on page 45, including
the highlights of our 2017 executive compensation information included under “Executive Summary.”
Proposal 4 - 2018 Long-Term Incentive Plan
We are asking you to approve the Blucora, Inc. 2018 Long-Term Incentive Plan. The Blucora, Inc. 2018 Long-Term
Incentive Plan is intended to replace the Blucora, Inc. 2015 Incentive Plan as Amended and Restated. Approval of the
Blucora, Inc. 2018 Long-Term Incentive Plan by our stockholders is required under NASDAQ listing rules.
Approval of the Blucora, Inc. 2018 Long-Term Incentive Plan is very important because the Board and Compensation
Committee believe that the number of shares of common stock currently available under the Blucora, Inc. 2015 Incentive
Plan as Amended and Restated is insufficient to meet the Company’s current and future equity compensation needs.
Stockholder approval of the 2018 Plan is intended to ensure that the Company has sufficient shares available to attract
and retain key employees, key contractors, and outside directors, and to further the Company’s growth and development.
For additional information concerning this proposal, see “Proposal Four—Approval of the Blucora, Inc. 2018 Long-Term
Incentive Plan” beginning on page 16 of this Proxy Statement, and for additional information concerning awards under
the 2018 Plan as components of our executive compensation program, see “Compensation Discussion and Analysis”
beginning on page 45 of this Proxy Statement.
Proposal 5 - Amendment to Restated Certificate of Incorporation
We are asking you to approve an amendment to the Blucora, Inc. Restated Certificate of Incorporation to increase both
the minimum and maximum number of directors that may serve on the Board of Directors. Currently, the Blucora, Inc.
Restated Certificate of Incorporation provides that the Board of Directors shall be composed of not less than five nor
more than nine directors, with the specific number to be set by resolution of the Board of Directors. If the amendment
is adopted, the Board of Directors will continue to have the authority to set the exact number of directors, but the range
of our Board of Directors will be expanded from the current range of five to nine directors to a range of six to 15 directors.
Approval of the amendment to the Blucora, Inc. Restated Certificate of Incorporation by our stockholders is required by
Delaware law.
We have discussed the need for an amendment to our Restated Certificate of Incorporation with some of our institutional
investors and believe that the approval of this amendment is important because it will ensure that the Company has a
sufficient number of directors to provide effective oversight of the Company and comply with best corporate governance
practices while also preventing the Board from becoming so large that it becomes inefficient and the decision making
process is hindered.
For additional information concerning this proposal, see “Proposal Five—Approval of Amendment to the Blucora, Inc.
Restated Certificate of Incorporation” beginning on page 28 of this Proxy Statement.
4
Corporate Governance Highlights
We are committed to good corporate governance, which promotes the long-term interests of our stockholders,
strengthens board and management accountability and helps build public trust in our Company. Our governance
following highlights:
framework
this proxy statement and
is described
throughout
includes
the
ü 7 Independent Directors
ü All Board Committees are Independent
ü
Movement toward a Declassified Board and
Annual Election of Board Members
ü Majority Voting for Directors in Uncontested
Elections With Resignation Policy
ü Regular Board and Committee Meetings
ü Risk Oversight by Full Board and Committees
ü Stockholders can Call Special Meetings
ü Stock Ownership Requirements for Directors and
Executive Officers
ü Regular Board and Committee Self Evaluations ü Annual ratification of Independent Registered
Public Accounting Firm
ü Separate Chairman and Chief Executive Officer ü Hedging and Pledging Prohibitions
ü Robust Insider Trading Policy
ü Code of Conduct and Ethics administered by the
Board of Directors
In addition, we believe that many of our compensation practices reflect good corporate governance. See our
“Executive Compensation Best Practices” on page 50 for additional information.
5
QUESTIONS AND ANSWERS REGARDING VOTING PROCEDURES AND OTHER INFORMATION
Questions and Answers about the Annual Meeting
Q. When and where is the annual meeting?
A. We will hold the annual meeting in the Rosetta Room of the Hilton Anatole, 2201 North Stemmons Freeway, Dallas,
Texas 75207.
Q. Why did I receive a notice in the mail regarding Internet availability of proxy materials instead of a full set
of proxy materials?
A. The Securities and Exchange Commission (the “SEC”) rules allow companies to choose the method for delivery
of proxy materials for stockholders. We have elected to deliver a Notice of Internet Availability of Proxy Materials, rather
than sending a full set of these materials in the mail. The Notice of Internet Availability was sent to stockholders on or
about April 19, 2018, and the proxy materials were made available on www.proxydocs.com/BCOR on the same day.
Utilizing this method of proxy delivery expedites receipt of proxy materials by our stockholders and lowers the cost of
the annual meeting.
Shares must be voted either by telephone, online or by completing and returning a proxy card. Shares cannot be voted
by marking, writing on and/or returning the Notice of Internet Availability. Any Notices of Internet Availability that are
returned will not be counted as votes. If you would like to receive a paper or email copy of the proxy materials, you
should follow the instructions in the Notice of Internet Availability for requesting copies or follow the procedures set
forth below.
Q. How do I request a paper copy of the proxy materials?
A. If you would like to request a paper copy of the proxy materials, including the proxy statement and form of proxy
and the Annual Report to Stockholders, please contact our Investor Relations department by mail at the address on
the first page of this proxy statement, by telephone at (972) 870-6000 or by e-mail at IR@Blucora.com, and we will
promptly deliver a copy to you. You may also request a paper copy of the proxy materials at www.proxydocs.com/
BCOR. Our proxy statement and Annual Report on Form 10-K are also available under the “Investor Relations” section
of our website at www.blucora.com or at www.proxydocs.com/BCOR.
Questions and Answers About the Proposals Presented at the Annual Meeting
Q. What proposals will be voted on at the annual meeting?
A. There are five proposals scheduled to be voted on at the annual meeting:
Proposal One: Election of the three Class I directors nominated by the Board of Directors of the Company;
Proposal Two: Ratification of the appointment of Ernst & Young LLP as the Company’s independent registered public
accounting firm for 2018;
Proposal Three: Advisory vote to approve the compensation of the Company's Named Executive Officers;
Proposal Four: Approval of the Blucora, Inc. 2018 Long-Term Incentive Plan; and
Proposal Five: Approval of the amendment to the Blucora, Inc. Restated Certificate of Amendment to increase the
range of directors that may serve on the Board of Directors from a range of five to nine to a range of six to 15.
We do not expect any matters other than those described in this Proxy Statement to come before the annual meeting.
The accompanying proxy card confers on the persons named as proxies the authority to vote the shares represented
by such proxy in their discretion on any other matters that may properly come before the annual meeting.
Q. What are the voting options for each proposal?
A. In the election of directors (Proposal One), you may vote “FOR” or “AGAINST” or “ABSTAIN” with respect to any
nominee.
On the ratification of the appointment of Ernst & Young LLP as the Company’s independent registered public accounting
firm for 2018 (Proposal Two), the approval, on an advisory basis, of the compensation of the Company’s Named
Executive Officers (Proposal Three), the approval of the Blucora, Inc. 2018 Long-Term Incentive Plan (Proposal 4),
6
and the approval of the amendment to the Blucora, Inc. Restated Certificate of Incorporation (Proposal Five), you may
vote “FOR,” “AGAINST,” or “ABSTAIN."
Q. What are the Board of Directors’ voting recommendations?
A. The Board of Directors recommends that you vote your shares:
•
•
•
•
•
“FOR” each nominee to the Board of Directors listed in this Proxy Statement;
“FOR” the ratification of Ernst & Young LLP as our independent registered public accounting firm for 2018;
“FOR” the approval, on an advisory basis, of the compensation of the Company’s Named Executive Officers;
"FOR” the approval of the Blucora, Inc. 2018 Long-Term Incentive Plan; and
"FOR" the approval of the amendment to the Blucora, Inc. Restated Certificate of Amendment.
Questions and Answers About Voting at the Annual Meeting
Q. How many votes are required to elect the Class I directors (Proposal One)?
A. For the election of directors (Proposal One), the three nominees to the Board of Directors of the Company who
receive a greater number of “FOR” votes than “AGAINST” votes from shares present at the meeting will be elected.
If the votes cast for any nominees do not exceed the votes cast against the nominee, the Board of Directors will consider
whether to accept or reject such directors' resignation, which is tendered to the Board of Directors pursuant to the
Company's Amended and Restated Corporate Governance Guidelines. Abstentions and broker non-votes will have
no effect on the outcome of the election of directors.
Q. How many votes are required to ratify the appointment of Ernst and Young LLP as the Company’s
independent registered public accounting firm (Proposal 2), approve the compensation of the Company’s
Named Executive Officers (Proposal 3) and approve the Blucora, Inc. 2018 Long-Term Incentive Plan (Proposal
4)?
A. The ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for
2018 (Proposal Two), the approval, on an advisory basis, of the compensation of the Company’s Named Executive
Officers (Proposal Three) and the approval of the Blucora, Inc. 2018 Long-Term Incentive Plan (Proposal 4) will each
require the affirmative vote of a majority of the shares of common stock present in person or represented by proxy at
the annual meeting and entitled to vote on such proposal.
If your shares are represented at the annual meeting but you “ABSTAIN” from voting on any of these matters, your
shares will be counted as present and entitled to vote on a particular proposal for purposes of establishing a quorum,
and the abstention will have the same effect as a vote against that proposal.
Because your broker does not have discretionary authority to vote your shares with respect to the vote to approve the
compensation, on an advisory basis, of the Company’s Named Executive Officers (Proposal Three) and the vote to
approve the Blucora, Inc. 2018 Long-Term Incentive Plan (Proposal 4), your broker will not be considered “entitled to
vote” at the annual meeting. Accordingly, a broker non-vote will have no effect on Proposals Three and Four. Broker
non-votes are not applicable to the vote to ratify the appointment of Ernst & Young LLP as our independent registered
public accounting firm for 2018 (Proposal Two) because your broker has discretionary authority to vote your common
stock with respect to such proposal.
Q. How many votes are required to approve the amendment to the Blucora, Inc. Restated Certificate of
Incorporation (Proposal 5)?
A. The approval of the amendment to the Blucora, Inc. Restated Certificate of Incorporation (Proposal 5) will require
the affirmative vote of a majority of the total shares of common stock outstanding. Because the total shares of common
stock outstanding will be the same no matter how many shares are actually voted, abstentions and broker non-votes
will have the same effect as a vote against the proposal.
7
Q. What is the purpose of the proposal to approve the amendment to the Blucora, Inc. Restated Certificate of
Incorporation (Proposal 5)?
A. Currently, the Blucora Inc. Restated Certificate of Incorporation provides that the Board of Directors shall be
composed of not less than five nor more than nine directors, with the specific number to be set by resolution of the
Board of Directors. If Proposal 5 is approved at the annual meeting, the Board of Directors will continue to have the
authority to set the exact number of directors, but the range will be expanded from the current range of five to nine
directors to a range of six to 15 directors.
The Board of Directors has determined that it is advisable and in the best interests of the Company and its stockholders
to increase both the minimum and maximum number of directors that may serve on the Board of Directors. Although
the Board of Directors has no current intention to increase the size of the Board of Directors to more than nine directors,
the Board of Directors believes that it is important to have the flexibility to adjust the size of the Board of Directors to
meet changing circumstances and the needs of the Company without seeking an amendment to the Certificate of
Incorporation. In making this decision, the Board of Directors concluded that fixing a range of between six and 15
directors would ensure that the Company has a sufficient number of directors to provide effective oversight of the
Company and comply with best corporate governance practices while also preventing the Board of Directors from
becoming so large that it becomes inefficient and the decision making process is hindered.
Q. How many votes do you need at the annual meeting to transact business?
A. A quorum must be present in order for business to be conducted at the annual meeting. A majority of our outstanding
shares entitled to vote, present in person or represented by proxy at the annual meeting, constitutes a quorum. In
addition to shares that are voted on any matter, abstentions and broker non-votes will be considered present at the
annual meeting for purposes of establishing a quorum.
Q. What is the difference between a Stockholder of Record and a Street Name holder?
A. If your shares are registered directly in your name with Computershare Shareowner Services, our transfer agent,
you are considered the “Stockholder of Record” with respect to those shares and we have sent the proxy statement
and proxy card directly to you.
If you hold your shares in an account with a broker, bank, or other nominee, the nominee is considered the record
holder of that stock. You are considered the beneficial owner of that stock, and your stock is held in “Street Name.”
The proxy statement and proxy card have been forwarded to you by your broker, bank, or other nominee. As the
beneficial owner, you have the right to direct your nominee regarding how to vote your shares.
Q. Who is entitled to vote?
A. All stockholders who owned our common stock at the close of business on the record date of April 9, 2018 are
entitled to receive notice of the annual meeting and to vote the shares they own as of the record date. Each stockholder
is entitled to one vote for each share of common stock held on all matters properly brought before the annual meeting
to be voted on. Our Restated Certificate of Incorporation and our Amended and Restated By-Laws prohibit cumulative
voting in the election of directors.
On the record date, 46,912,609 shares of our common stock were outstanding and entitled to vote, and we had 369
stockholders of record. The number of holders of record does not include beneficial owners of our common stock who
hold their shares in Street Name.
Q. What is a broker non-vote?
A. A broker non-vote occurs when a broker holding shares for a beneficial owner does not vote on a particular proposal
because the broker does not have discretionary voting power with respect to that item and has not received voting
instructions from the beneficial owner.
8
It is important that you instruct your broker, bank, or other nominee to cast your vote if you want it to count
in the election of directors (Proposal One), in the advisory vote to approve the compensation of our Named
Executive Officers (Proposal Three), in the vote to approve the Blucora, Inc. 2018 Long-Term Incentive Plan
(Proposal 4) or in the vote to approve the amendment to the Blucora, Inc. Restated Certificate of Incorporation
(Proposal 5). If you hold your shares in Street Name and do not instruct your broker, bank, or other nominee
how to vote, your shares will not be voted on these proposals. In such a case, your shares will be considered
“broker non-votes” with regard to such proposals because the broker, bank, or other nominee will not have
discretionary authority to vote your shares. The only proposal for which brokers and banks have discretionary
authority is the ratification of Ernst & Young LLP as our independent registered public accounting firm
(Proposal Two).
Q. What if I do not vote for some of the items listed on my proxy card or voting instruction card?
A. If you provide specific voting instructions (either on your proxy card or to your broker, bank, or other nominee), your
shares will be voted as you have instructed. If you are a Stockholder of Record and you execute the proxy card and
do not provide voting instructions on certain matters, your shares will be voted in accordance with the Board’s
recommendations. If you hold your shares in Street Name and do not provide voting instructions, your broker, bank,
or other nominee will have discretionary authority to vote such shares ONLY on the ratification of the appointment of
Ernst & Young LLP as the Company’s independent registered public accounting firm for 2018 (Proposal Two) and your
shares will not be voted or counted on any of the other proposals.
Q. How can I vote my shares without attending the annual meeting?
A. Whether you are a Stockholder of Record or you hold your shares beneficially through a broker, bank, or other
nominee, you may vote without attending the annual meeting. You may vote by granting a proxy or, for shares held in
Street Name, by submitting voting instructions to your broker, bank, or other nominee. In most cases, you will be able
to do this by telephone, via the Internet, or by mail. For Stockholders of Record, please refer to the summary instructions
included on your proxy card. For shares held through a broker, bank, or other nominee, please refer to the voting
instruction card that will be provided by your broker, bank, or other nominee.
If your shares are registered under different names, or if they are in more than one account, you may receive more
than one proxy card or voting instruction card. Please follow the instructions on each proxy card or voting instruction
card to ensure that all of your shares are represented at the annual meeting. Please sign each proxy card exactly as
your name or names appear on the proxy card. For joint accounts, each owner should sign the proxy card. When
signing as an executor, administrator, attorney, trustee, guardian, or other representative, please print your full name
and title on the proxy card.
BY TELEPHONE OR THE INTERNET - If you have telephone or Internet access, you may submit your vote by following
the instructions on the proxy card or voting instruction card. Blucora, Inc. is incorporated under Delaware law, which
specifically permits electronically transmitted proxies, provided that each such proxy contains or is submitted with
information from which the inspector of election can determine that such proxy was authorized by the stockholder. The
electronic voting procedures provided for the annual meeting are designed to authenticate each stockholder by the
use of a control number to allow stockholders to vote their shares and to confirm that their instructions have been
properly recorded.
BY MAIL - You may submit your proxy by mail by signing your proxy card if you requested and received one or, for
shares held through a broker, bank, or other nominee, by following the voting instruction card provided by your broker,
bank, or other nominee and mailing it in the enclosed, postage-paid envelope. Shares cannot be voted by marking,
writing on and/or returning the Notice. Any Notices that are returned will not be counted as votes.
Q. How may I vote my shares in person at the annual meeting?
A. Shares held directly in your name as the Stockholder of Record may be voted in person at the annual meeting. If
you hold your shares in Street Name, and you wish to vote at the meeting, you must present a legal proxy from your
broker, bank, or other nominee in order to vote at the meeting. If you choose to attend the annual meeting, please
bring proof of identification for entrance to the meeting. If you hold your shares in Street Name, please also bring your
proof of beneficial ownership from your bank, broker, or other nominee, such as a brokerage statement.
9
Even if you currently plan to attend the annual meeting, the Company recommends that you submit your proxy card
or voting instruction card as described above so that your vote will be counted if you later decide not to attend the
annual meeting.
Q. Can I change my vote?
A. Yes. If you are a Stockholder of Record, you may revoke your proxy by any of the following means:
•
•
•
signing and submitting a new proxy card with a later date;
voting by telephone or via the Internet as instructed above (only your latest telephone or Internet proxy is
counted); or
attending the meeting and voting in person (as described above).
Attending the annual meeting will not revoke your proxy unless you specifically request it.
If you are a Street Name holder, your broker, bank, or other nominee should provide instructions explaining how you
may change or revoke your voting instructions. In general, Street Name holders may change their vote at any time
prior to 5:00 p.m. Eastern Time on the day before the annual meeting date.
Q. Do I have any dissenters’ or appraisal rights with respect to any of the matters to be voted on at the annual
meeting?
A. No. Delaware law does not provide stockholders any dissenters’ or appraisal rights with respect to the matters to
be voted on at the annual meeting.
Q. Where can I find the voting results of the annual meeting?
A. The preliminary voting results will be announced at the annual meeting. The final results will be published in a
Current Report on Form 8-K within four business days of the end of the annual meeting, which will be filed with the
SEC and will also be available at www.blucora.com. If final results are not available within four business days of the
end of the annual meeting, preliminary results will be published in a Current Report on Form 8-K at that time, and the
final results will be published in an amended Current Report on Form 8-K/A when they are available.
Q. Who will count the votes?
A. Votes will be counted and certified by the Inspector of Election.
Questions and Answers About the Procedures of the Annual Meeting
Q. Is a list of registered stockholders available?
A. The Company’s list of stockholders as of the record date, April 9, 2018, will be available for inspection for 10 days
prior to the 2018 annual meeting and at the annual meeting for any purpose germane to the annual meeting. If you
want to inspect the stockholder list, please call the office of the Chief Legal Officer at (972) 870-6000 to schedule an
appointment.
Q. What is “householding” and how does it affect me?
A. The Company has adopted a procedure approved by the SEC called “householding.” Under this procedure,
Stockholders of Record who have the same address and last name and who do not participate in electronic delivery
of proxy materials will receive only one set of the proxy materials, unless one or more of these stockholders notifies
the Company that they wish to continue receiving individual copies. The Company believes this will provide greater
convenience for stockholders, as well as cost savings for the Company by reducing the number of duplicate documents
that are mailed. Stockholders who participate in householding will continue to receive separate proxy cards.
Householding will not in any way affect your rights as a stockholder.
If you are eligible for householding, but you and other Stockholders of Record with whom you share an address currently
receive multiple copies of our proxy materials, or if you hold stock in more than one account, and in either case you
wish to receive only a single copy of each of these documents for your household, please contact Mediant
10
Communications Inc. at 1-866-648-8133 or contact them by email at paper@investorelections.com or using the internet
at www.investorelections.com/BCOR.
If you participate in householding and wish to receive a separate copy of our proxy materials, including the Annual
Report on Form 10-K for the year ended December 31, 2017 or this Proxy Statement, or if you do not wish to participate
in householding and prefer to receive separate copies of these documents in the future, please contact Mediant
Communications Inc. as indicated above.
Street Name holders can request information about householding from their banks, brokers, or other Stockholders of
Record.
Q. Who is making this proxy solicitation and who will bear the expenses of the proxy solicitation?
A. This solicitation of proxies is made on behalf of the Company. We will bear all expenses incurred in connection with
the solicitation of proxies. We have engaged D.F. King & Co., Inc. to assist with the solicitation of proxies for an
estimated fee of $10,000 plus expenses. We will bear the reasonable expenses incurred by banks, brokerage firms,
custodians, nominees and fiduciaries in forwarding proxy material to beneficial owners. Our directors, officers and
employees may also solicit proxies by mail, telephone and personal contact. They will not receive any additional
compensation for these activities.
Q. Who can help answer my questions?
A. The information provided above in this “Question and Answer” format is for your convenience only and is merely a
summary of certain information contained in this Proxy Statement. We urge you to carefully read this entire Proxy
Statement, including the documents referred to in this Proxy Statement. If you have any questions or need additional
material, please feel free to contact Investor Relations at (972) 870-6000 or IR@Blucora.com.
11
PROPOSAL ONE
ELECTION OF DIRECTORS
General
At our 2017 annual meeting of stockholders, our stockholders voted to approve the declassification of our Board of
Directors over a three-year period beginning with our 2018 annual meeting of stockholders. Each director is currently
assigned to one of three classes. The Class I directors up for election at our 2018 annual meeting will be elected for
a one-year term. In 2019, the Class II directors will be up for election and will be elected for a one-year term. In 2020,
all members of our Board of Directors will be up for election for a one-year term, and thereafter all directors will be
elected annually. The Company’s Board of Directors has set the size of the Board at eight members.
A director serves in office until his or her successor is duly elected and qualified unless the director resigns, dies, or
is unable to serve in the capacity of director due to disability or other cause. If a director resigns or is otherwise unable
to serve before the end of his or her term, the Board may appoint a director to fill the remainder of that term, reduce
the size of the Board, or leave the position vacant.
Director Nominee Information and Qualifications
The three directors set forth below have been nominated by the Board of Directors at the recommendation of the
Nominating and Governance Committee for election at the 2018 annual meeting of stockholders to serve for a one-
year term ending in 2019. The Board of Directors has affirmatively determined that each Director Nominee, excluding
Mr. Clendening who also serves as our Chief Executive Officer ("CEO") and President, qualifies as an independent
director under the NASDAQ listing rules. No Director Nominee is being elected pursuant to any arrangement or
understanding between the Director Nominee and any other person or persons. For further information on the process
of director nominations and criteria for selection of Director Nominees, see “Director Nomination Process” below.
Name of Director Nominee
John S. Clendening
Lance G. Dunn
H. McIntyre Gardner
Age
55 Director, President and CEO
Positions with Blucora
55 Director
56 Director
Director
Since
2016
2012
2017
John S. Clendening was appointed to serve as the Company’s President and CEO on April 4, 2016, and he was also
appointed as a member of the Board on the same date. Prior to being appointed President and Chief Executive Officer,
Mr. Clendening served as Executive Vice President and Co-Head, Investor Services Division at The Charles Schwab
Corporation in San Francisco from 2012 to 2015. He served as Executive Vice President, Shared Strategic Services
from 2007 to 2011 and as Chief Executive Officer and Executive Vice President of Charles Schwab Bank from 2007
to 2009. From 2004 to 2007, Mr. Clendening served in executive roles with the Investor Services Division and
Independent Investor Business Unit with The Charles Schwab Corporation. Prior to joining The Charles Schwab
Corporation, he served in various leadership roles at eMac Digital LLC and Living.Com. He was also Chief Marketing
Officer and Senior Vice President, Consumer Banking Group and Senior Vice President, Marketing and Strategy,
Credit Card Division for First Union Corporation. Earlier in his career, he served at The Coca-Cola Company, the Frito-
Lay, Inc. Division of PepsiCo, SEARS Specialty Merchandising Group and Booz-Allen & Hamilton, Inc. Mr. Clendening
previously served on the board of directors of Betterment Holdings, Inc. and currently serves on the board of directors
of SVB Financial Group. He received a B.A. in Economics from Northwestern University and an M.B.A. from Harvard
Graduate School of Business Administration.
Relevant Qualifications and Experience: Mr. Clendening has relevant experience as an executive in the financial
services and consumer goods industries, leading both Fortune 500 companies and entrepreneurial businesses. The
Board believes that Mr. Clendening’s experience as an executive in the financial services industry brings important
perspective to the Board as the Company continues its transformation to a technology enabled financial solutions
company. As President and CEO, Mr. Clendening brings insight into the Company’s operations and strategic plan and
facilitates the Board’s ability to perform its critical oversight function.
12
Lance G. Dunn has served as a director of Blucora since 2012. Mr. Dunn was a co-founder and Chief Executive Officer
of TaxAct (formerly 2nd Story Software, Inc.) until January 31, 2012, when the Company acquired TaxAct. From the
closing of the acquisition until August 2012, he served as TaxAct’s Vice President, Development. Prior to co-founding
TaxAct in 1998, Mr. Dunn was Vice President of Software Development at Parsons Technology, Inc., where he played
a significant role in the development and growth of Parson’s tax software. Mr. Dunn received a B.A. in Accounting from
Coe College and is a Certified Public Accountant.
Relevant Qualifications and Experience: As the co-founder and former CEO of the Company’s TaxAct business,
Mr. Dunn brings significant experience and background to the Board with respect to an industry and business that is
important to the Company’s success. The Board also believes that Mr. Dunn’s extensive experience as a technology
executive provides insight and guidance that assists the Board in its oversight and strategy roles.
H. McIntyre Gardner was appointed to the Board of Directors on March 1, 2017. Mr. Gardner has been a private
investor since 2008. From July 2000 to January 2008, Mr. Gardner held senior executive positions at Merrill Lynch &
Co., Inc., a global financial services company, most recently as Senior Vice President, Head of Americas Region and
Global Bank Group, Global Private Client. Prior to 2000, Mr. Gardner served in senior executive positions with Helen
of Troy Limited and Appliance Corporation of America and as an investment banker with Merrill Lynch. Mr. Gardner
has been a director of Spirit Airlines, Inc., a NYSE listed transportation company, since 2010 and a director of TeamSnap,
Inc. since April 2017. Mr. Gardner earned a B.A. in Religion from Dartmouth College in 1983.
Relevant Qualifications and Experience: Mr. Gardner brings relevant industry experience to the Board from his decades
of leadership and operating experience in the wealth and consumer products industries. The Board believes that
Mr. Gardner’s experience as an executive in the wealth and consumer products industries brings an important
perspective to the Board and the Company as it continues its transformation into a technology enabled financial
solutions company and seeks to meet its strategic growth initiatives.
Additional Information
Unless otherwise instructed, the proxy holders will vote the proxies received by them “FOR” the nominees listed in
this Proxy Statement. The Director Nominees have consented to be named in this Proxy Statement and agreed to
serve as directors if elected by the stockholders. In the event that any nominee to the Board is unable or declines to
serve as a director at the time of the annual meeting, the proxies will be voted for a nominee who may be designated
by the present Board of Directors to fill the vacancy. It is not expected that any nominees will be unable or will decline
to serve as a director. Alternatively, the Board of Directors may reduce the size of the Board or maintain such vacancy.
Pursuant to our Corporate Governance Guidelines, each of the Director Nominees has tendered an irrevocable
resignation that becomes effective if such Director Nominee fails to receive the required vote at the annual meeting.
The Nominating and Corporate Governance Committee must consider the resignation and recommend to the Board
the action to be taken with respect to the resignation. The director whose resignation is under consideration shall not
participate in the Nominating and Corporate Governance Committee’s recommendation with respect to the resignation.
The Board of Directors is required to consider and act on the recommendation within ninety (90) days following
certification of the election results and will publicly disclose its decision whether to accept the resignation offer.
A copy of our Corporate Governance Guidelines is available on the investor relations section of our website at
www.blucora.com/governance.
Vote Required
A Director Nominee will be elected to the Board of Directors if the votes cast "FOR" such Director Nominee’s election
exceed the votes cast "AGAINST" such Director Nominee’s election (with abstentions and broker non-votes not counted
as a vote cast either “FOR” or “AGAINST” that Director Nominee’s election).
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE NOMINEES NAMED HEREIN
13
PROPOSAL TWO
RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM FOR 2018
The Audit Committee of the Board of Directors has appointed Ernst & Young LLP as the Company’s independent
registered public accounting firm for 2018 and recommends that stockholders vote “FOR” ratification of this appointment.
Although stockholder approval of this appointment is not required by law and is not binding on the Company, the Audit
Committee will take your vote on this proposal into consideration when appointing the independent registered public
accounting firm in the future. Even if you ratify the appointment of Ernst & Young LLP, the Audit Committee may, in its
sole discretion, terminate such engagement and direct the appointment of another independent registered public
accounting firm at any time during the year, although it has no current intention to do so.
Ernst & Young LLP was initially appointed by the Audit Committee in March 2012. Representatives of Ernst & Young
LLP are expected to be present at the meeting, with the opportunity to make a statement if they desire to do so, and
are expected to be available to respond to appropriate questions.
Vote Required
The proposal to ratify the appointment of Ernst & Young LLP as the Company's independent registered public accounting
firm for 2018 requires the affirmative vote of the holders of a majority of the shares of common stock present, in person
or by proxy, and entitled to vote on the proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” PROPOSAL TWO
14
PROPOSAL THREE
ADVISORY VOTE TO APPROVE THE COMPENSATION OF THE
COMPANY’S NAMED EXECUTIVE OFFICERS
What You are Being Asked to Approve
We hold advisory votes on the compensation of our Named Executive Officers, which is referred to as say-on-pay, at
every annual meeting of stockholders. Our Board of Directors values the opinions of our stockholders and believes
an annual advisory vote allows our stockholders to provide us with their input on our executive compensation program.
We conducted an advisory vote on the frequency of the advisory say-on-pay vote at our 2017 Annual Meeting. Following
the recommendation of our stockholders in 2017, we will continue to hold our advisory Say on Pay vote on an annual
basis. We received very strong approval of our say-on-pay vote at our annual meeting of stockholders in 2017, with
97.5% of our stockholders who voted at the meeting voting "FOR" approval.
We are asking you to approve, on a non-binding, advisory basis, the compensation of our Named Executive Officers
for 2017 as disclosed in the “Compensation Discussion and Analysis” and accompanying compensation tables and
related narrative discussion beginning on page 45. This vote is not intended to address any specific item of
compensation, but rather the overall compensation of our Named Executive Officers and the compensation philosophy,
policies and practices described in this proxy statement.
Our Compensation Program
We believe that our Named Executive Officer compensation program described throughout the “Compensation
Discussion and Analysis” is aligned with the interests of our stockholders. Our compensation programs are designed
to provide a competitive level of compensation necessary to attract, motivate and retain talented and experienced
executives and reward our Named Executive Officers for the achievement of short- and long-term strategic and
operational goals and the achievement of increased total stockholder return, while at the same time avoiding the
encouragement of unnecessary or excessive risk-taking. In addition, we have implemented a number of executive
compensation best practices and policies over the last few years that we believe reflect sound governance that also
promote the long-term interests of our stockholders.
Resolution for Advisory Vote to Approve Executive Compensation
The Board of Directors and its committees value the opinions of our stockholders and will carefully consider the outcome
of the advisory vote to approve executive compensation. Because this vote is advisory, it is not binding on the Board
of Directors and/or its committees. The resolution below is required by Section 14A of the Securities Exchange Act of
1934 (the “Exchange Act”). We ask our stockholders to vote FOR the following resolution at the Annual Meeting:
“RESOLVED, that the compensation of our Named Executive Officers, as disclosed in
the proxy statement for our 2018 Annual Meeting of Stockholders pursuant to the
compensation disclosure rules of the Securities and Exchange Commission, including
the Compensation Discussion and Analysis, the compensation tables and the narrative
discussion, is hereby APPROVED on an advisory basis.”
Vote Required
The proposal to approve, on a non-binding basis, the compensation of our Named Executive Officers requires the
affirmative vote of the holders of a majority of the shares of common stock present, in person or by proxy, and entitled
to vote on the proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” PROPOSAL THREE
15
PROPOSAL FOUR
APPROVAL OF THE BLUCORA, INC. 2018 LONG-TERM INCENTIVE PLAN
Proposed Plan
We are asking stockholders to approve the Blucora, Inc. 2018 Long-Term Incentive Plan (the “2018 Plan”). The Board
of Directors of the Company has adopted the 2018 Plan upon the recommendation of the Compensation Committee
of the Board of Directors (the “Compensation Committee”), subject to stockholder approval. The 2018 Plan is intended
to replace the Blucora, Inc. 2015 Incentive Plan as Amended and Restated (the “2015 Plan”), which was originally
approved by stockholders in 2015 and subsequently approved by stockholders as amended and restated in 2016. If
the 2018 Plan is approved by stockholders, the 2015 Plan will terminate and no further awards will be made under the
2015 Plan on or after the date of such stockholder approval (the “Effective Date”), provided that the terms of the 2015
Plan will continue to apply to awards previously granted under the 2015 Plan. It is the judgment of the Board that the
2018 Plan is in the best interest of the Company and its stockholders.
Reasons for the Proposal
The Board and the Compensation Committee believe that to enhance long-term stockholder value, the Company
needs to maintain competitive employee compensation, incentive, and retention programs. Providing employees and
other key contributors an equity stake in the Company’s success is a vital component of these programs. The purpose
of the 2018 Plan is to attract and retain the services of key employees, key contractors, and outside directors of the
Company and its related companies and to provide such persons with a proprietary interest in the Company through
the granting of incentive stock options, nonqualified stock options, stock appreciation rights (“SARs”), restricted stock,
restricted stock units ("RSUs"), performance awards, dividend equivalent rights, and other awards, whether granted
singly, or in combination, or in tandem, that will increase the interest of such persons in the Company’s welfare, furnish
an incentive to such persons to continue their services for the Company or its related companies and provide a means
through which the Company may attract able persons as employees, contractors, and outside directors.
The Board and Compensation Committee further believe that the number of shares of common stock currently available
under the 2015 Plan is insufficient to meet the Company’s current and future equity compensation needs. Stockholder
approval of the 2018 Plan is intended to ensure that the Company has sufficient shares available to attract and retain
key employees, key contractors, and outside directors, and to further the Company’s growth and development. For
a discussion of awards under the 2018 Plan as components of the Company’s executive compensation program,
please refer to the “Compensation Discussion and Analysis” section.
Background for Requested Share Authorization
The 2018 Plan newly authorizes the issuance of an additional 2,600,000 shares. If the 2018 Plan is approved, the
number of shares of the Company’s common stock authorized for grant under the 2018 Plan will be equal to the sum
of (i) 5,563,134 shares (which reflects the newly authorized shares, plus the 2,963,134 reserved but unissued shares
available as of April 2, 2018 under the 2015 Plan), plus (ii) the number of shares subject to awards granted under the
2015 Plan and the Company’s Restated 1996 Flexible Stock Incentive Plan (the "1996 Plan") as of April 4, 2016
(collectively, the “Prior Plans”) that are outstanding on the Effective Date, and that on or after the Effective Date, are
forfeited, expire or are canceled; and (iii) the number of shares subject to awards relating to common stock under the
Prior Plans that, on or after the Effective Date are settled in cash ((ii) and (iii) collectively, the “Prior Plan Awards”). If
the 2018 Plan is approved by stockholders, the 2015 Plan will terminate and no further awards will be made under the
2015 Plan on or after the Effective Date. As of April 2, 2018, we had the following:
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Total shares underlying outstanding options / SARs (including 1996 Plan, 2015 Plan and
Inducement Plan (defined below))
Weighted-average exercise price of outstanding options / SARs (including 1996 Plan, 2015
Plan and Inducement Plan)
Weighted-average remaining term of outstanding options / SARs (including 1996 Plan,
2015 Plan and Inducement Plan)
Total shares underlying outstanding unvested full value awards (including 1996 Plan, 2015
Plan and Inducement Plan)
Total shares available for grant (under the 2015 Plan only)
Total shares available under all equity plans (including 2015 Plan and Inducement Plan)
3,697,810
$
14.54
5.18 years
1,159,137
2,963,134
4,134,190
In setting the number of shares authorized for issuance under the 2018 Plan, the Compensation Committee and the
Board considered the number of outstanding equity awards and shares available for grant under the 2015 Plan, the
Company’s historical granting practices and burn rate, and the level of potential dilution that will result from adoption
of the 2018 Plan.
In 2015, 2016 and 2017, the Company granted equity awards representing a total of 2,632,182, 6,534,378, and
1,847,795 shares, respectively, as follows:
Stock options granted
RSUs granted / performance stock units earned
Weighted-average common stock outstanding during
the year
Gross burn rate (unadjusted)
Gross burn rate (adjusted) (2)
2015
1,794,763
837,419
2016 (1)
4,955,954
1,578,424
2017
1,474,266
373,529
40,959,000
41,494,000
44,370,000
6.43%
8.47%
15.75%
19.55%
4.16%
5.01%
(1)
(2)
Includes grants made under our 2016 Inducement Plan (the "Inducement Plan"), which was adopted by our Board of
Directors on January 29, 2016 and did not require stockholder approval.
For the purposes of calculating Gross Burn Rate (adjusted), RSU grants are converted to option equivalents at a 2/1 ratio
based on the Company’s stock price volatility.
The Company’s three-year average annual gross burn rate for the period from January 1, 2015 through December 31,
2017 was 11.01% on an adjusted basis and 8.78% on an unadjusted basis. As of April 2, 2018, the number of shares
subject to outstanding equity awards plus the number of the shares available for grant under the 2015 Plan, represent
19.8% of the Company’s outstanding common stock on a fully diluted basis, which was 46,827,171 shares outstanding
as of April 2, 2018. If the 2018 Plan is approved, the potential dilution will be 24.8% based on the shares outstanding
as of April 2, 2018. We believe our three-year average annual burn rate and level of potential dilution, assuming the
2018 Plan is approved by stockholders, compare favorably to the Company’s industry peers and are lower than the
industry thresholds established by certain major proxy advisory firms.
Based on a review of the Company’s historical practice, the recent trading price of our common stock, and advice from
the Compensation Committee’s independent compensation consultant, Meridian Compensation Partners, LLC, the
Compensation Committee and the Board currently believe the amounts authorized for issuance under the 2018 Plan
will be sufficient to cover awards for at least three years. The Company’s future burn rate will depend on a number of
factors, including the number of participants in the 2018 Plan, the price per share of our common stock, any changes
to our compensation strategy, changes in business practices or industry standards, changes in the compensation
practices of our competitors, or changes in compensation practices in the market generally, and the methodology used
to establish the equity award mix.
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Highlights of the Plan
The 2018 Plan includes several features that are consistent with the interests of the Company’s stockholders and
sound corporate governance practices, including the following:
ü Fungible share pool. Shares issued as RSUs and other full-value awards count as 2.0 shares against the
number of shares authorized for issuance under the 2018 Plan.
ü No recycling of shares or “liberal share counting” practices. Shares tendered to the Company or retained
by the Company in the exercise or settlement of an award or for tax withholding may not become available
again for issuance under the 2018 Plan.
ü Minimum Vesting Requirements. No Award will vest prior to one-year from its date of grant (subject to a
5% carve-out as described below for “Exempt Shares” and subject to an exception for shares granted directors
that vest at the Company’s next annual meeting as described below).
ü No automatic share replenishment or “evergreen” provision. There is no evergreen feature pursuant to
which the shares authorized for issuance under the 2018 Plan can be automatically replenished.
ü No liberal change in control definition. Change in control is triggered only by the occurrence, rather than
stockholder approval, of a merger or other change in control event.
ü No discounted stock options or SARs. All stock options and SARs must be issued with an exercise or
grant price at fair market value or above.
ü No repricing of stock options or SARs. Repricing or other exchanges or buyouts of stock options and
SARs are prohibited.
ü Awards subject to clawback. Awards under the Plan are subject to recoupment as provided in the Company’s
clawback policy.
ü No dividends on stock options, SARs or unvested awards. No dividends or dividend equivalents accrue
or are payable on stock options or SARs. Dividends and dividend equivalent rights accrue and are payable
only when the underlying awards become vested.
ü Limit on outside director awards. The 2018 Plan establishes a maximum amount of shares (by dollar
value) that may be granted to any outside director in any calendar year.
ü No tax gross ups. The 2018 Plan does not provide for the gross-up of any excise tax liability on 2018 Plan
awards.
ü No reload options. The 2018 Plan does not provide for the grant of reload stock options.
Description of the 2018 Plan
The following is a brief description of the 2018 Plan. A copy of the 2018 Plan is attached as Appendix A to this Proxy
Statement, and the following description is qualified in its entirety by reference to the 2018 Plan.
Effective Date and Expiration. The 2018 Plan was adopted by the Board of Directors on April 6, 2018, subject to
and conditioned upon stockholder approval of the 2018 Plan and to be effective as of the date of stockholder approval.
Unless sooner terminated by action of the Board, the 2018 Plan will terminate and expire on the tenth anniversary of
the Effective Date, but awards granted before that date will continue to be effective in accordance with their terms and
conditions. The 2018 Plan replaces and supersedes the 2015 Plan in its entirety. The 2015 Plan will terminate on the
Effective Date, but will continue to apply to awards granted under the 2015 Plan prior to the Effective Date.
Share Authorization. Subject to certain adjustments, the maximum number of shares of common stock that may be
delivered pursuant to awards granted under the 2018 Plan is equal to the sum of (i) 5,563,134 shares (which reflects
the newly authorized shares, plus the 2,963,134 reserved but unissued shares currently available under the 2015
Plan), plus (ii) the number of shares subject to the Prior Plan Awards. Of the shares of common stock reserved under
the 2018 Plan, up to 5,000,000 shares may be delivered pursuant to incentive stock options qualifying under Section 422
of the Internal Revenue Code of 1986, as amended (the “IRC”). Shares to be issued may be made available from
authorized but unissued shares of common stock, shares of common stock held by the Company in its treasury, or
shares of common stock purchased by the Company on the open market or otherwise. During the term of the 2018
Plan, the Company will at all times reserve and keep available the number of shares of common stock that shall be
sufficient to satisfy the requirements of the 2018 Plan. The 2018 Plan also provides that no more than 5% of the
shares of common stock that may be issued pursuant to an award under the 2018 Plan may be designated as “Exempt
Shares.” “Exempt Shares” are shares subject to awards that are granted with more favorable vesting provisions than
the minimum vesting provisions otherwise required by the 2018 Plan (as described below).
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Share Counting and Fungible Pool. If an award under the 2018 Plan (or a Prior Plan Award) is cancelled, forfeited,
or expires, in whole or in part, the shares subject to such forfeited, expired, or cancelled award may again be awarded
under the 2018 Plan. Awards that may be satisfied either by the issuance of shares of common stock or by cash or
other consideration will be counted against the maximum number of shares of common stock that may be issued under
the 2018 Plan only during the period that the award is outstanding or to the extent the award is ultimately satisfied by
the issuance of shares of common stock. Shares of common stock otherwise deliverable pursuant to an award that
are withheld upon exercise or vesting of an award for purposes of paying the exercise price or tax withholdings
(including, without limitation, any shares withheld in connection with the exercise of stock-settled SARs) will be treated
as delivered to the participant and will be counted against the maximum number of shares of common stock that may
be issued under the 2018 Plan. However, such awards will not reduce the number of shares of common stock that
may be issued if the settlement of the award will not require the issuance of shares, as, for example, a SAR that can
be satisfied only by the payment of cash. Only shares forfeited back to the Company or shares cancelled on account
of termination, expiration or lapse of an award will again be available for grant of incentive stock options under the
2018 Plan, but will not increase the maximum number of shares described above as the maximum number of shares
of common stock that may be delivered pursuant to incentive stock options.
The aggregate number of shares of common stock available for issuance under the 2018 Plan will be reduced by 2.0
shares for each share delivered in settlement of awards other than stock options or SARs and one share for each
share delivered in settlement of stock options or SARs. Any shares of common stock that again become available for
issuance under the 2018 Plan will be added back to the 2018 Plan as 2.0 shares if such shares were subject to awards
other than stock options or SARs and one share if such shares were subject to stock options or SARs.
Director Award Limits. No outside director may be granted any award or awards which would permit the aggregate
fair market value (determined on the date of grant) of awards granted to the outside director during any calendar year
to exceed $700,000 plus an additional $700,000 in fair market value (determined on the date of grant) for one-time
awards to a newly appointed or elected director. This limit does not apply to any award made pursuant to deferred
compensation arrangements in lieu of all or a portion of cash retainers.
Administration. The 2018 Plan will be administered by the Board or such committee of the Board of Directors as is
designated by the Board of Directors (the “Committee”). The Committee shall consist of not fewer than two persons.
Any member of the Committee may be removed at any time, with or without cause, by resolution of the Board of
Directors. Any vacancy occurring in the membership of the Committee may be filled by appointment by the Board of
Directors. Membership on the Committee shall be limited to those members of the Board who are “non-employee
directors” as defined in Rule 16b-3 promulgated under the Exchange Act. As of the Effective Date, the Board intends
for the Compensation Committee to administer the 2018 Plan.
The Board or the Committee may delegate certain duties to one or more officers of the Company as provided in the
2018 Plan. The Committee will interpret the 2018 Plan and award agreements, prescribe, amend, and rescind any
rules and regulations, as necessary or appropriate for the administration of the 2018 Plan, establish performance goals
for an award and certify the extent of their achievement, and make such other determinations or certifications and take
such other action as it deems necessary or advisable in the administration of the 2018 Plan. Any interpretation,
determination, or other action made or taken by the Committee shall be final, binding, and conclusive on all interested
parties.
Eligibility. Employees (including any employee who is also a director or an officer), contractors, and outside directors
of the Company or its related companies whose judgment, initiative and efforts contributed to or may be expected to
contribute to the successful performance of the Company and its related companies are eligible to participate in the
2018 Plan. As of April 2, 2018, the Company and its related companies had approximately 493 employees, 4,011
contractors, and 7 outside directors. The Committee is empowered, in its sole discretion, to select the employees,
contractors, and directors who will participate in the 2018 Plan.
Financial Effect of Awards. The Company will receive no monetary consideration for the granting of awards under
the 2018 Plan, unless otherwise provided when granting restricted stock or RSUs. The Company will receive no
monetary consideration other than the option price for shares of common stock issued to participants upon the exercise
of their stock options and the Company will receive no monetary consideration upon the exercise of stock appreciation
rights.
Stock Options. The Committee may grant either incentive stock options qualifying under IRC Section 422 or non-
qualified stock options, provided that only employees of the Company and its subsidiaries (excluding subsidiaries that
19
are not corporations) are eligible to receive incentive stock options. Stock options may not be granted with an option
price less than 100% of the fair market value of a share of common stock on the date the stock option is granted. If
an incentive stock option is granted to an employee who owns or is deemed to own more than 10% of the combined
voting power of all classes of stock of the Company (or any parent or subsidiary), the option price must be at least
110% of the fair market value of a share of common stock on the date of grant. The Committee will determine the
terms of each stock option at the time of grant, including, without limitation, the methods by or forms in which shares
will be delivered to participants. The maximum term of each option, the times at which each option will be exercisable,
and provisions requiring forfeiture of unexercised options at or following termination of employment or service generally
are fixed by the Committee, except that the Committee may not grant stock options with a term exceeding 10 years
or, in the case of an incentive stock option granted to an employee who owns or is deemed to own more than 10% of
the combined voting power of all classes of stock of the Company (or any parent or subsidiary), five years. In addition,
no dividends or dividend equivalent rights may be paid or granted with respect to any stock options granted under the
2018 Plan.
Recipients of stock options may pay the option exercise price (i) in cash; (ii) by wire transfer or check acceptable to
the Company; (iii) if permitted by the Committee, having the Company withhold shares of common stock that would
otherwise be issued on exercise of the stock option that have an aggregate fair market value equal to the aggregate
option price of the shares being purchased; (iv) if permitted by the Committee, tendering (either actually or, so long
as the shares are registered under Section 12(b) or 12(g) of the Exchange Act, by attestation) shares of common stock
owned by the participant that have an aggregate fair market value equal to the aggregate option price of the shares
being purchased; (v) unless the Committee determines otherwise and so long as the shares are registered under
Section 12(b) or 12(g) of the Exchange Act, and to the extent permitted by law, by delivery of irrevocable instructions
to a brokerage firm designated or approved by the Company to sell certain of the shares of common stock purchased
upon the exercise of the option and to promptly deliver to the Company the amount of proceeds to pay the aggregate
option price of the shares being purchased; or (vi) such other consideration as the Committee may permit, in its sole
discretion.
Stock Appreciation Rights. The Committee is authorized to grant SARs as a stand-alone award, or freestanding
SARs, or in conjunction with stock options granted under the 2018 Plan, or tandem SARs. A SAR is the right to receive
an amount equal to the excess of the fair market value of a share of common stock on the date of exercise over the
exercise price. The exercise price may be equal to or greater than the fair market value of a share of common stock
on the date of grant. The Committee, in its sole discretion, may place a ceiling on the amount payable on the exercise
of a SAR, but any such limitation shall be specified at the time the SAR is granted. A SAR granted in tandem with a
stock option will require the holder, upon exercise, to surrender the related stock option with respect to the number of
shares as to which the SAR is exercised. The Committee will determine the terms of each SAR at the time of the
grant, including, without limitation, the methods by or forms in which the value will be delivered to participants (whether
made in shares of common stock, in cash or in a combination of both). The maximum term of each SAR, the times
at which each SAR will be exercisable, and provisions requiring forfeiture of unexercised SARs at or following termination
of employment or service generally are fixed by the Committee, except that no freestanding SAR may have a term
exceeding 10 years and no tandem SAR may have a term exceeding the term of the option granted in conjunction
with the tandem SAR. In addition, no dividends or dividend equivalent rights may be paid or granted with respect to
any SARs granted under the 2018 Plan.
Restricted Stock and RSUs. The Committee is authorized to grant restricted stock and RSUs. Restricted stock
consists of shares that are transferred or sold by the Company to a participant, but are subject to substantial risk of
forfeiture and to restrictions on their sale or other transfer by the participant. RSUs are the right to receive shares of
common stock at a future date in accordance with the terms of such grant upon the attainment of certain conditions
specified by the Committee, which include substantial risk of forfeiture and restrictions on their sale or other transfer
by the participant. The Committee determines the eligible participants to whom, and the time or times at which, grants
of restricted stock or restricted stock units will be made, the number of shares or units to be granted, the price to be
paid, if any, the time or times within which the shares covered by such grants will be subject to forfeiture, the time or
times at which the restrictions will terminate, and all other terms and conditions of the grants. Restrictions or conditions
could include, but are not limited to, the attainment of performance goals (as described below), continuous service
with the Company, the passage of time or other restrictions or conditions; provided that, if the right to receive dividends
is awarded, then (A) any cash dividends and stock dividends with respect to a restricted stock award shall be withheld
by the Company for the participant’s account, and interest may be credited on the amount of the cash dividends
withheld at a rate and subject to such terms as determined by the Committee; and (B) such cash dividends or stock
dividends so withheld by the Company and attributable to any particular share of restricted stock (and earnings thereon,
if applicable) shall be distributed to such participant in cash or, at the discretion of the Committee, in shares of common
20
stock having a fair market value equal to the amount of such dividends, if applicable, upon the release of restrictions
on such share and, if such share is forfeited, the participant shall will also forfeit the right to dividends attributable to
such forfeited share. The value of the RSUs may be paid in shares of common stock, cash, or a combination of both,
as determined by the Committee.
Performance Awards. The Committee may grant performance awards payable in cash, shares of common stock, or
a combination thereof at the end of a specified performance period. Payment will be contingent upon achieving pre-
established performance goals (as discussed below) by the end of the performance period. The Committee will
determine the length of the performance period, the maximum payment value of an award, and the minimum
performance goals required before payment will be made, so long as such provisions are not inconsistent with the
terms of the 2018 Plan, and to the extent an award is subject to IRC Section 409A, are in compliance with the applicable
requirements of IRC Section 409A and any applicable regulations or guidance. If the Committee determines in its sole
discretion that the established performance measures or objectives are no longer suitable because of a change in the
Company’s business, operations, corporate structure, or for other reasons that the Committee deems satisfactory, the
Committee may modify the performance measures or objectives and/or the performance period. Subject to Committee
discretion, a performance award will terminate for all purposes if the participant is not continuously employed by the
Company at all times during the applicable performance period.
Other Awards. The Committee may grant other forms of awards payable in cash or shares of common stock if the
Committee determines that another form of award is consistent with the purpose and restrictions of the 2018 Plan.
The terms and conditions of such other form of award will be specified by the grant. Such other awards may be granted
for no cash consideration, for such minimum consideration as may be required by applicable law or for such other
consideration as may be specified by the grant.
Dividend Equivalent Rights. The Committee may grant a dividend equivalent right either as a component of another
award (to the extent permitted under the 2018 Plan) or as a separate award. The terms and conditions of the dividend
equivalent right will be specified by the grant and, when granted as a component of another award, may have terms
and conditions different from such other award; provided, however, that (i) any dividend equivalent rights with respect
to such other award will be withheld by the Company for a participant’s account until such other award is vested,
subject to such terms as determined by the Committee; and (ii) such dividend equivalent rights so withheld and
attributable to another award will be distributed to such participant in cash or, at the discretion of the Committee, in
shares of common stock having a fair market value equal to the amount of such dividend equivalent rights, if applicable,
upon vesting of the other award and, if such other award is forfeited, the right to dividend equivalent rights attributable
to such forfeited award will also be forfeited. No dividend equivalent right may be paid or granted with respect to any
stock option or SAR. Dividend equivalents granted as a separate award may also be paid currently or may be deemed
to be reinvested in additional shares of common stock. Any such reinvestment will be at the fair market value at the
time thereof. Dividend equivalent rights may be settled in cash or shares of common stock.
Performance Goals. Awards of restricted stock, RSUs, performance awards, and other awards (whether relating to
cash or shares of common stock) under the 2018 Plan may be made subject to the attainment of performance goals
relating to one or more business criteria which, where applicable, may consist of one or more or any combination of
the following criteria: cash flow (including, but not limited to, operating cash flow, free cash flow or cash flow return on
capital); cost; working capital; earnings (and any variations thereon, including, without limitation, earnings before
interest and taxes; earnings before interest, taxes, depreciation and amortization; earnings before interest, taxes,
depreciation, amortization, and stock-based compensation or other similar expenses; operating earnings); earnings
per share; book value per share; share price; operating income (including or excluding depreciation, amortization,
extraordinary items, restructuring charges or other expenses); revenues (and any variations thereon, including, without
limitation, gross revenues; net revenues; revenues from products); expenses (and any variations thereon); assets
under management; fees based on assets under management; monetized units or products; sales (and any variations
thereon); operating margins; gross margins; return on assets; return on equity; debt; debt plus equity; credit quality or
debt ratings; profit (and any variations thereon) market or economic value added; stock price appreciation; total
stockholder return; cost control; strategic initiatives; market share; net income; return on invested capital; improvements
in capital structure; capital expenditures; operational improvements; or customer satisfaction, employee satisfaction,
services performance, subscriber, cash management or asset management metrics; the accomplishment of mergers,
acquisitions, dispositions, public offerings or similar extraordinary business transactions; inventory levels, inventory
turn or shrinkage; or total return to stockholders (“Performance Criteria”). Any Performance Criteria may include or
exclude (i) events that are of an unusual nature or indicate infrequency of occurrence; (ii) gains or losses acquisitions
or divestitures, (iii) asset write-downs; (iv) litigation or claim judgments or settlements; (v) foreign exchange gains and
losses; (vi) impairments; (vi) changes in tax or accounting regulations or laws, (vii) the effect of a merger or acquisition,
21
any reorganization or restructuring programs; or (viii) other similar occurrences. In all other respects, Performance
Criteria are to be calculated in accordance with the Company’s financial statements, under generally accepted
accounting principles, or under a methodology established by the Committee prior to the issuance of an award which
is consistently applied and identified in the audited financial statements, including footnotes, or the Compensation
Discussion and Analysis section of the Company’s proxy statement as incorporated by reference to the Company’s
Annual Report on Form 10-K.
Vesting of Awards; Forfeiture; Assignment. Except as otherwise provided below, the Committee, in its sole
discretion, may determine that an award will be immediately vested in whole or in part, or that all or any portion may
not be vested until a date, or dates, subsequent to its date of grant, or until the occurrence of one or more specified
events, subject in any case to the terms of the 2018 Plan. Except to the extent an award is for Exempt Shares, no
awards granted by the Committee nor any portion of an award (even on a pro rata basis) may vest earlier than one
(1) year after the date of grant; provided, however, with respect to grants of awards made on the date of an annual
stockholders meeting to outside directors, such one (1) year vesting period shall be deemed satisfied if such awards
vest on the earlier of the first anniversary of the date of grant of such award or the first annual stockholders meeting
following the date of grant. The Committee may not accelerate the date on which all or any portion of an award may
be vested or waive the period an award is restricted on a full value award except upon the participant’s death, “total
and permanent disability,” retirement, or a “change in control” (as such terms are defined in the 2018 Plan).
Notwithstanding the foregoing, the Committee may, in its sole discretion, grant awards with more favorable vesting
provisions at any time, provided that the shares of common stock subject to such awards will be designated as Exempt
Shares. As discussed above, only 5% of the shares of common stock that may be issued pursuant to an award under
the 2018 Plan may be designated as Exempt Shares.
The Committee may impose on any award, at the time of grant or thereafter, such additional terms and conditions as
the Committee determines, including terms requiring forfeiture of awards in the event of a participant’s termination of
service. The Committee will specify the circumstances under which performance awards may be forfeited in the event
of a termination of service by a participant prior to the end of a performance period or settlement of awards. Except
as otherwise determined by the Committee, restricted stock will be forfeited upon a participant’s termination of service
during the applicable restriction period.
Awards granted under the 2018 Plan generally are not assignable or transferable except by will or by the laws of
descent and distribution, except that the Committee may, in its discretion and pursuant to the terms of an award
agreement, permit certain transfers of nonqualified stock options or SARs to: (i) the spouse (or former spouse), children,
or grandchildren of the participant (“Immediate Family Members”); (ii) a trust or trusts for the exclusive benefit of such
Immediate Family Members; (iii) a partnership in which the only partners are (1) such Immediate Family Members
and/or (2) entities which are controlled by Immediate Family Members; (iv) an entity exempt from federal income tax
pursuant to IRC Section 501(c)(3) or any successor provision; or (v) a split interest trust or pooled income fund described
in IRC Section 2522(c)(2) or any successor provision, provided that (x) there is no consideration for any such transfer,
(y) the applicable award agreement pursuant to which such award is granted must be approved by the Committee and
must expressly provide for such transferability, and (z) subsequent transfers of transferred awards will be prohibited
except those by will or the laws of descent and distribution.
Adjustments Upon Changes in Capitalization. In the event that any dividend or other distribution, recapitalization,
stock split, reverse stock split, rights offering, reorganization, merger, consolidation, split-up, spin-off, split-off,
combination, subdivision, repurchase, or exchange of the shares of common stock or other securities of the Company,
issuance of warrants or other rights to purchase shares of common stock or other securities of the Company, or other
similar corporate transaction or event affects the fair value of an award, then the Committee will adjust any or all of
the following so that the fair value of the award immediately after the transaction or event is equal to the fair value of
the award immediately prior to the transaction or event (i) the number of shares and type of common stock (or the
securities or property) which thereafter may be made the subject of awards, (ii) the number of shares and type of
shares of common stock (or other securities or property) subject to outstanding awards, (iii) the option price of each
outstanding award, (iv) the amount, if any, the Company pays for forfeited shares of common stock in accordance with
the terms of the 2018 Plan, and (v) the number of or exercise price of shares of common stock then subject to outstanding
SARs previously granted and unexercised under the 2018 Plan, to the end that the same proportion of the Company’s
issued and outstanding shares of common stock in each instance will remain subject to exercise at the same aggregate
exercise price; provided however, that the number of shares of common stock (or other securities or property) subject
to any award will always be a whole number. Notwithstanding the foregoing, no such adjustment will be made or
authorized to the extent that such adjustment would cause the 2018 Plan or any stock option to violate IRC Section
22
422 or IRC Section 409A. All such adjustments must be made in accordance with the rules of any securities exchange,
stock market, or stock quotation system to which the Company is subject.
Amendment or Discontinuance of the 2018 Plan. The Board may, at any time and from time to time, without the
consent of the participants, alter, amend, revise, suspend, or discontinue the 2018 Plan in whole or in part; provided,
however, that (i) no amendment that requires stockholder approval in order for the 2018 Plan and any awards under
the 2018 Plan to continue to comply with IRC Sections 421 and 422 (including any successors to such sections, or
other applicable law) or any applicable requirements of any securities exchange or inter-dealer quotation system on
which the Company’s stock is listed or traded, will be effective unless such amendment is approved by the requisite
vote of the Company’s stockholders entitled to vote on the amendment; and (ii) unless required by law, no action by
the Board regarding amendment or discontinuance of the 2018 Plan may adversely affect any rights of any participants
or obligations of the Company to any participants with respect to any outstanding award under the 2018 Plan without
the consent of the affected participant.
No Repricing of Stock Options or SARs. The Committee may not “reprice” any stock option or SAR. For purposes
of the 2018 Plan, “reprice” means any of the following or any other action that has the same effect: (i) amending a
stock option or SAR to reduce its exercise price or base price, (ii) canceling a stock option or SAR at a time when its
exercise price or base price exceeds the fair market value of a share of common stock in exchange for cash or a stock
option, SAR, award of restricted stock or other equity award, or (iii) taking any other action that is treated as a repricing
under generally accepted accounting principles, provided that nothing will prevent the Committee from (x) making
adjustments to awards upon changes in capitalization, (y) exchanging or cancelling awards upon a merger,
consolidation, or recapitalization, or (z) substituting awards for awards granted by other entities, to the extent permitted
by the 2018 Plan.
Recoupment for Restatements. The Committee may recoup all or any portion of any shares or cash paid to a
participant in connection with an award, as set forth in the Company’s clawback policy, if any, approved by the Board
from time to time.
Federal Income Tax Consequences
The following is a brief summary of certain federal income tax consequences relating to the transactions described
under the 2018 Plan as set forth below. This summary does not purport to address all aspects of federal income
taxation and does not describe state, local, or foreign tax consequences. This discussion is based upon provisions of
the IRC and the treasury regulations issued thereunder, and judicial and administrative interpretations under the IRC
and treasury regulations, all as in effect as of the date hereof, and all of which are subject to change (possibly on a
retroactive basis) or different interpretation.
Law Affecting Deferred Compensation. In 2004, IRC Section 409A was added to regulate all types of deferred
compensation. If the requirements of IRC Section 409A are not satisfied, deferred compensation and earnings thereon
will be subject to tax as they vest, plus an interest charge at the underpayment rate plus 1% and a 20% penalty tax.
Certain performance awards, stock options, stock appreciation rights, RSUs, and certain types of restricted stock are
subject to IRC Section 409A. The Company intends that awards granted under the 2018 Plan comply with, or otherwise
be exempt from, IRC Section 409A, but make no representation or warranty to that effect.
Incentive Stock Options. A participant will not recognize income at the time an incentive stock option is granted.
When a participant exercises an incentive stock option, a participant also generally will not be required to recognize
income (either as ordinary income or capital gain). However, to the extent that the fair market value (determined as of
the date of grant) of the shares of common stock with respect to which the participant’s incentive stock options are
exercisable for the first time during any year exceeds $100,000, the incentive stock options for the shares of common
stock over $100,000 will be treated as non-qualified stock options, and not incentive stock options, for federal tax
purposes, and the participant will recognize income as if the incentive stock options were non-qualified stock options.
In addition to the foregoing, if the fair market value of the shares of common stock received upon exercise of an
incentive stock option exceeds the exercise price, then the excess may be deemed a tax preference adjustment for
purposes of the federal alternative minimum tax calculation. The federal alternative minimum tax may produce
significant tax repercussions depending upon the participant’s particular tax status.
The tax treatment of any shares of common stock acquired by exercise of an incentive stock option will depend upon
whether the participant disposes of his or her shares prior to two years after the date the incentive stock option was
granted or one year after the shares of common stock were transferred to the participant (referred to as the “Holding
23
Period”). If a participant disposes of shares of common stock acquired by exercise of an incentive stock option after
the expiration of the Holding Period, any amount received in excess of the participant’s tax basis for such shares will
be treated as short-term or long-term capital gain, depending upon how long the participant has held the shares of
common stock. If the amount received is less than the participant’s tax basis for such shares, the loss will be treated
as short-term or long-term capital loss, depending upon how long the participant has held the shares.
If the participant disposes of shares of common stock acquired by exercise of an incentive stock option prior to the
expiration of the Holding Period, the disposition will be considered a “disqualifying disposition.” If the amount received
for the shares of common stock is greater than the fair market value of the shares of common stock on the exercise
date, then the difference between the incentive stock option’s exercise price and the fair market value of the shares
of common stock at the time of exercise will be treated as ordinary income for the tax year in which the “disqualifying
disposition” occurs. The participant’s basis in the shares of common stock will be increased by an amount equal to
the amount treated as ordinary income due to such “disqualifying disposition.” In addition, the amount received in such
“disqualifying disposition” over the participant’s increased basis in the shares of common stock will be treated as capital
gain. However, if the price received for shares of common stock acquired by exercise of an incentive stock option is
less than the fair market value of the shares of common stock on the exercise date and the disposition is a transaction
in which the participant sustains a loss which otherwise would be recognizable under the IRC, then the amount of
ordinary income that the participant will recognize is the excess, if any, of the amount realized on the “disqualifying
disposition” over the basis of the shares of common stock.
Non-qualified Stock Options. A participant generally will not recognize income at the time a non-qualified stock option
is granted. When a participant exercises a non-qualified stock option, the difference between the option price and any
higher market value of the shares of common stock on the date of exercise will be treated as compensation taxable
as ordinary income to the participant. The participant’s tax basis for shares of common stock acquired under a non-
qualified stock option will be equal to the option price paid for such shares of common stock, plus any amounts included
in the participant’s income as compensation. When a participant disposes of shares of common stock acquired by
exercise of a non-qualified stock option, any amount received in excess of the participant’s tax basis for such shares
will be treated as short-term or long-term capital gain, depending upon how long the participant has held the shares
of common stock. If the amount received is less than the participant’s tax basis for such shares, the loss will be treated
as short-term or long-term capital loss, depending upon how long the participant has held the shares.
Special Rule if Option Price is Paid for in Shares of Common Stock. If a participant pays the option price of a non-
qualified stock option with previously-owned shares of common stock and the transaction is not a disqualifying
disposition of shares previously acquired under an incentive stock option, the shares of common stock received equal
to the number of shares surrendered are treated as having been received in a tax-free exchange. The participant’s
tax basis and holding period for these shares received will be equal to the participant’s tax basis and holding period
for the shares surrendered. The shares of common stock received in excess of the number of shares surrendered will
be treated as compensation taxable as ordinary income to the participant to the extent of their fair market value. The
participant’s tax basis in these shares will be equal to their fair market value on the date of exercise, and the participant’s
holding period for such shares will begin on the date of exercise.
If the use of previously acquired shares of common stock to pay the exercise price of a non-qualified stock option
constitutes a disqualifying disposition of shares previously acquired under an incentive stock option, the participant
will have ordinary income as a result of the disqualifying disposition in an amount equal to the excess of the fair market
value of the shares of common stock surrendered, determined at the time such shares were originally acquired on
exercise of the incentive stock option, over the aggregate option price paid for such shares. As discussed above, a
disqualifying disposition of shares of common stock previously acquired under an incentive stock option occurs when
the participant disposes of such shares before the end of the Holding Period. The other tax results from paying the
exercise price with previously-owned shares are as described above, except that the participant’s tax basis in the
shares that are treated as having been received in a tax-free exchange will be increased by the amount of ordinary
income recognized by the participant as a result of the disqualifying disposition.
Restricted Stock. A participant who receives restricted stock generally will recognize as ordinary income the excess,
if any, of the fair market value of the shares of common stock granted as restricted stock at such time as the shares
are no longer subject to forfeiture or restrictions, over the amount paid, if any, by the participant for such shares.
However, a participant who receives restricted stock may make an election under IRC Section 83(b) within 30 days
of the date of transfer of the shares of common stock to recognize ordinary income on the date of transfer of the shares
equal to the excess of the fair market value of such shares (determined without regard to the restrictions on such
shares) over the purchase price, if any, of such shares. If a participant does not make an election under IRC Section
24
83(b), then the participant will recognize as ordinary income any dividends received with respect to such shares. At
the time of sale of such shares, any gain or loss realized by the participant will be treated as either short-term or long-
term capital gain (or loss) depending on the holding period. For purposes of determining any gain or loss realized, the
participant’s tax basis will be the amount previously taxable as ordinary income, plus the purchase price paid by the
participant, if any, for such shares.
Stock Appreciation Rights. Generally, a participant who receives a stand-alone SAR will not recognize taxable income
at the time the stand-alone SAR is granted, provided that the SAR is exempt from or complies with IRC Section 409A.
If a participant receives the appreciation inherent in the SARs in cash, the cash will be taxed as ordinary income to
the recipient at the time it is received. If a participant receives the appreciation inherent in the SARs in stock, the spread
between the then current market value and the grant price, if any, will be taxed as ordinary income to the participant
at the time it is received. In general, there will be no federal income tax deduction allowed to the Company upon the
grant or termination of SARs. However, upon the exercise of a SAR, the Company will be entitled to a deduction equal
to the amount of ordinary income the recipient is required to recognize as a result of the exercise.
Other Awards. In the case of an award of RSUs, performance awards, dividend equivalent rights or other stock or
cash awards, the recipient will generally recognize ordinary income in an amount equal to any cash received and the
fair market value of any shares received on the date of payment or delivery, provided that the award is exempt from
or complies with IRC Section 409A. In that taxable year, the Company will receive a federal income tax deduction in
an amount equal to the ordinary income which the participant has recognized.
Federal Tax Withholding. Any ordinary income realized by a participant upon the exercise of an award under the
2018 Plan is subject to withholding of federal, state, and local income tax and to withholding of the participant’s share
of tax under the Federal Insurance Contribution Act and the Federal Unemployment Tax Act. To satisfy federal income
tax withholding requirements, the Company and its related companies will have the right to require that, as a condition
to the issuance of any shares of common stock, the participant remit to the Company an amount sufficient to satisfy
the withholding requirements. Alternatively, the Company may withhold a portion of the shares of common stock
(valued at fair market value) that otherwise would be issued to the participant to satisfy all or part of the withholding
tax obligations or may, if the Company consents, accept delivery of shares of common stock with an aggregate fair
market value that equals or exceeds the required tax withholding payment.
Withholding does not represent an increase in the participant’s total income tax obligation, since it is fully credited
toward his or her tax liability for the year. Additionally, withholding does not affect the participant’s tax basis in the
shares of common stock. Compensation income realized and tax withheld will be reflected on Forms W-2 supplied
by the Company to employees by January 31 of the succeeding year. Deferred compensation that is subject to IRC
Section 409A will be subject to certain federal income tax withholding and reporting requirements.
Tax Consequences to the Company. To the extent that a participant recognizes ordinary income in the circumstances
described above, the Company will be entitled to a corresponding deduction provided that, among other things, the
income meets the test of reasonableness, is an ordinary and necessary business expense, is not an “excess parachute
payment” within the meaning of IRC Section 280G and is not disallowed by the $1,000,000 limitation on certain executive
compensation under IRC Section 162(m).
Million Dollar Deduction Limit and Other Tax Matters. Following the recent enactment of the Tax Cuts and Jobs
Act in late 2017, the Company may not deduct compensation of more than $1,000,000 (including performance-based
compensation, unless grandfathered as described below) that is paid to “covered employees” (as defined in IRC
Section 162(m)), which include an individual (or, in certain circumstances, his or her beneficiaries) who, at any time
during the taxable year, is the Company’s principal executive officer, principal financial officer, an individual who is
among the three highest compensated officers for the taxable year (other than an individual who was either the
Company’s principal executive officer or its principal financial officer at any time during the taxable year), or anyone
who was a covered employee for purposes of IRC Section 162(m) for any tax year beginning on or after January 1,
2017. This limitation on deductions only applies to compensation paid by a publicly-traded corporation (and not
compensation paid by non-corporate entities) and may not apply to certain types of compensation, such as qualified
performance-based compensation, that is payable pursuant to a written, binding contract (such as an award agreement
corresponding to a Prior Plan Award) that was in place as of November 2, 2017, so long as the contract is not materially
modified after that date. To the extent that compensation is payable pursuant to a Prior Plan Award on or before
November 2, 2017, and if the Company determines that IRC Section 162(m) will apply to any such awards, the Company
intends that the terms of those awards will not be materially modified and will be constructed so as to constitute qualified
25
performance-based compensation and, as such, will be exempt from the $1,000,000 limitation on deductible
compensation.
If an individual’s rights under the 2018 Plan are accelerated as a result of a change in control and the individual is a
“disqualified individual” under IRC Section 280G, the value of any such accelerated rights received by such individual
may be included in determining whether or not such individual has received an “excess parachute payment” under
IRC Section 280G, which could result in (i) the imposition of a 20% federal excise tax (in addition to federal income
tax) payable by the individual on the value of such accelerated rights, and (ii) the loss by the Company of a compensation
deduction.
Interest of Directors and Executive Officers
All members of the Board and all executive officers of the Company are eligible for awards under the 2018 Plan and
thus, have a personal interest in the approval of the 2018 Plan.
Plan Benefits
All awards to employees, officers, contractors and outside directors under the 2018 Plan are made at the discretion
of the Committee. No awards may be made under the 2018 Plan until on or after the Effective Date. Therefore, the
future benefits and amounts that will be received or allocated to such individuals under the 2018 Plan are not
determinable at this time.
The closing sale price of a share of the Company’s common stock on the NASDAQ Global Select Market (“NASDAQ”)
on April 2, 2018 was $24.50 per share.
Vote Required
The proposal to approve the Blucora, Inc. 2018 Long-Term Incentive Plan requires the affirmative vote of the holders
of a majority of the shares of common stock present, in person or by proxy, and entitled to vote on the proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" PROPOSAL FOUR
26
EQUITY COMPENSATION PLANS
Our stockholders have approved the 2015 Plan, the 1996 Plan, and the Blucora, Inc. 2016 Employee Stock Purchase
Plan (the “2016 ESPP”). Our Board of Directors adopted the Inducement Plan on January 29, 2016, which did not
require stockholder approval under NASDAQ rules. The terms and conditions of the Inducement Plan are substantially
similar to those of the 2015 Plan, except that under the Inducement Plan, 2,400,000 shares are authorized for issuance,
eligibility is limited to newly hired employees, incentive stock options may not be granted, and the Inducement Plan is
not subject to stockholder approval. The 1996 Plan is now terminated and no additional equity grants may be made
under that plan.
Each plan is described under “Note 11: Stockholders' Equity” in the Notes to Consolidated Financial Statements
included in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2017.
The table below sets forth information regarding outstanding awards and shares available for future issuance under
the Company’s equity compensation plans as of December 31, 2017.
Plan category
Equity compensation plans approved
by stockholders
Equity compensation plans not
approved by stockholders
Total
(a)
(b)
Number of securities
to be issued upon
exercise of
outstanding options,
warrants, and rights
Weighted-average
exercise price of
outstanding options,
warrants, and rights (1)
(c)
Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a))
3,747,116 (2) $
972,983 (4) $
$
4,720,099
14.08
9.46
13.13
4,889,450 (3)
1,132,776 (5)
6,022,226
(1) Consists of the weighted-average exercise price of outstanding options, as outstanding RSUs do not have an exercise price.
(2) Consists of 3,023,516 shares of common stock issuable upon exercise of outstanding options and 723,600 shares of common
(3)
stock issuable upon vesting of RSUs under the 2015 Plan and 1996 Plan.
Includes 4,027,730 shares available for future grant under the 2015 Plan and 861,599 shares available for future grant under
the 2016 ESPP. For the most current offering period that ended on January 31, 2018, 36,314 shares were issued under the
2016 ESPP. The 1996 Plan was terminated for purposes of future grants in May 2015. Does not include shares available
for grant under the 2016 Inducement Plan.
(4) Consists of 782,406 shares of common stock issuable upon exercise of outstanding options and 190,577 shares of common
stock issuable upon vesting of RSUs under the 2016 Inducement Plan.
Includes shares available for future grant under the 2016 Inducement Plan.
(5)
27
PROPOSAL FIVE
APPROVAL OF AMENDMENT TO THE BLUCORA, INC.
RESTATED CERTIFICATE OF INCORPORATION
Currently, our Restated Certificate of Incorporation, dated August 10, 2012 (as amended, the “Certificate of
Incorporation”), provides that the Board shall be composed of not less than five nor more than nine directors, with the
specific number to be set by resolution of the Board. If Proposal Five is approved by the Company’s stockholders at
the annual meeting, the Board will continue to have the authority to set the exact number of directors, but the range
will be expanded from the current range of five to nine directors to a range of six to 15 directors (the “Charter
Amendment”).
The general description of the proposed Charter Amendment set forth in these Proposals is qualified in its entirety by
reference to the text of the Charter Amendment, which is attached as Appendix B to this Proxy Statement. Additions
to our Certificate of Incorporation are indicated by bolded underlined text and deletions are indicated by strike-outs.
Reasons for the Charter Amendment
The Board determined that it was advisable and in the best interests of the Company and its stockholders to increase
both the minimum and maximum number of directors that may serve on the Board. Although the Board has no current
intention to increase the size of the Board to more than nine directors, the Board believes that it is important to have
the flexibility to adjust the size of the Board to meet changing circumstances and the needs of the Company without
seeking an amendment to the Certificate of Incorporation. In making this decision, the Board concluded that fixing a
range of between six and 15 directors would ensure that the Company has a sufficient number of directors to provide
effective oversight of the Company and comply with best corporate governance practices while also preventing the
Board from becoming so large that it becomes inefficient and the decision making process is hindered.
Effective Time of the Charter Amendment
If Proposal Five is approved by our stockholders, it will become effective when the Company files the Charter
Amendment with the Secretary of State of the State of Delaware, which the Company intends to do promptly following
the annual meeting. However, notwithstanding the approval of the Charter Amendment, the Board will have the sole
authority to elect whether and when to amend the Certificate of Incorporation. If the Company’s stockholders do not
approve Proposal Five, the current limitations on Board size contained in the Certificate of Incorporation will be
maintained.
Vote Required
The approval of the Charter Amendment will require the affirmative vote of the holders of a majority of the outstanding
shares entitled to vote at the annual meeting.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE
“FOR” PROPOSAL FIVE
28
INFORMATION REGARDING THE BOARD OF DIRECTORS
Director Information
Our Board of Directors is currently comprised of eight members. In addition, the Board of Directors’ committee structure
currently consists of three principal committees that are all comprised of independent directors: the Audit Committee,
the Compensation Committee and the Nominating and Governance Committee. The Board may also convene other
ad hoc or sub-committees, the composition, number, and membership of which the Board of Directors may revise from
time to time, as appropriate.
The following table lists each of our current directors and sets forth the information about each of the committees of
the Board of Directors:
Directors and Board Committees as of April 9, 2018
(M = Committee Member; C = Committee Chair)
Director
Steven Aldrich
William L. Atwell (Chair)
John S. Clendening*
Lance G. Dunn
H. McIntyre Gardner
Georganne C. Proctor
Christopher W. Walters
Mary S. Zappone
Audit
Committee
Compensation
Committee
Nominating
and
Governance
Committee
M
M
M
C
C
M
M
C
M
* Mr. Clendening is our only director who is not independent because he serves as our President and CEO.
The Board of Directors has general oversight responsibility for the Company’s affairs and, in exercising its fiduciary
duties, the Board represents and acts on behalf of the stockholders. Although the Board does not have responsibility
for the Company’s day-to-day management, it stays regularly informed about the Company's business and provides
oversight and guidance to management through periodic meetings and other communications. The Board is significantly
involved in, among other things, the Company’s strategic planning process, leadership development, and succession
planning, as well as other functions carried out through the Board committees as described below.
2017 Board of Directors Transition
During 2017, our Board underwent the following membership changes. Effective February 28, 2017, the Board
appointed William L. Atwell (Chair) and H. McIntyre Gardner as Class I and Class II directors, respectively, to fill the
vacancies created as a result of the retirement of John Cunningham and David Chung. Steven Hooper retired from
the Board following our 2017 annual meeting of stockholders and Andrew Snyder did not to stand for re-election at
the 2017 annual meeting. Georganne C. Proctor was elected as a Class III director to fill the vacancy left by Andrew
Snyder, and Steven Aldrich was appointed as a Class II director in order to fill the vacancy created by Mr. Hooper.
When Ms. Huebner retired from our Board on August 10, 2017, the Board reduced the Board size from nine to eight
members rather than filling the vacancy at that time. The Company and the Board express their deepest gratitude to
Messrs. Cunningham, Chung, Hooper and Snyder and Ms. Huebner for their years of dedicated service.
We believe that the experience and qualifications of each of our new Board members will provide valuable assistance
to the Board and the Company as it continues its transformation into a technology-enabled financial solutions company
and seeks to meet its strategic growth initiatives.
Director Nominees and Continuing Directors
Information regarding our Director Nominees is included under "Proposal One—Election of Directors." Information
regarding our Class II and Class III directors who are not up for election is described below.
29
Qualifications
The descriptions below and the information under "Proposal One—Election of Directors" includes a brief discussion
of the specific experience, qualifications, attributes, and skills that led to the conclusion that each of the directors and
nominees should continue to serve on the Board of Directors.
The Board of Directors nominates candidates for election after receiving recommendations from the Nominating and
Governance Committee, which bases its recommendations on the criteria set forth in the Director Nomination Policy
described below under “Director Nomination Process.” The Board of Directors believes that the directors and nominees
have an appropriate balance of knowledge, experience, attributes, skills, and expertise as a whole to ensure the Board
of Directors appropriately satisfies its oversight responsibilities and acts in the best interests of stockholders. In light
of the Company's transformation into a technology enabled financial solutions company, the Board of Directors will
continue to assess the skills and qualifications of its members.
Class II Directors - Terms expiring in 2019
The names of the continuing Class II directors whose terms expire in 2019, and certain information about them are
set forth below:
Name of Director
Steven Aldrich
William L. Atwell
Christopher W. Walters
Age
48
67
44
Positions with Blucora
Director
Chairman
Director
Director
Since
2017
2017
2014
Steven Aldrich was appointed to the Board of Directors on June 1, 2017. Mr. Aldrich has served as the Chief Product
Officer at GoDaddy, Inc. (“GoDaddy”) since January 2016, and he previously served as Senior Vice President, Business
Applications beginning in July 2012. Before joining GoDaddy in 2012, Mr. Aldrich served in various senior management
roles at Intuit, Inc., a business and financial software company, from 1996 through 2008, including Vice President of
Strategy and Innovation for the small business division. Mr. Aldrich also served as Chief Executive Officer of Outright
Inc., a bookkeeping and accounting service, from 2011 to 2012, when it was acquired by GoDaddy, and as Chief
Executive Officer of Posit Science Corporation, a software and services company, from 2008 to 2011. Mr. Aldrich holds
a Bachelor of Arts in Physics from the University of North Carolina and an M.B.A. from Stanford University.
Relevant Qualifications and Experience: Mr. Aldrich has extensive product management experience from his years
of serving in senior management positions that provides him with unique experience in operations, strategy, company
growth, and management. He also has significant experience with consumer and small business software-as-a-service
businesses, which the Board believes will provide valuable assistance to the Board and the Company as it continues
its transformation into a technology enabled financial solutions company and seeks to meet its strategic growth
initiatives.
William L. Atwell was appointed as Chairman of the Board on March 1, 2017. Mr. Atwell has been Managing Director
of Atwell Partners, LLC, a financial services consulting firm, since June 2012. From September 2008 to May 2012,
Mr. Atwell was President of Cigna International, a global financial services company. Prior to 2008, Mr. Atwell held
senior executive positions with Charles Schwab & Co., Inc. and Citigroup, Inc. Mr. Atwell currently serves as a director
of Webster Financial Corporation, a NYSE listed commercial banking company, as an independent trustee of AQR
Mutual Funds (AQR Capital Management, LLC) and as a Trustee at Fairfield University. Previously, he served as a
dIrector of USI Holdings, which was formerly listed on the NASDAQ, until it was sold to Goldman Sachs Capital Partners
in 2007. Mr. Atwell holds a B.S. and an M.B.A. from Long Island University.
Relevant Qualifications and Experience: Mr. Atwell brings extensive relevant industry experience and knowledge to
the Board, having spent more than 40 years in the financial services industry as an executive at Cigna International,
Charles Schwab & Co., Inc. and Citigroup, Inc. The Board believes Mr. Atwell’s extensive financial services industry
experience will provide valuable assistance to the Board and the Company as it continues its transformation into a
technology enabled financial solutions company and seeks to meet its strategic growth initiatives.
30
Christopher W. Walters was appointed to the Board of Directors in 2014. Mr. Walters is currently the Chief Executive
Officer of Encompass Digital Media, Inc. ("Encompass"), a technology services business that captures, processes and
delivers more than 25,000 hours of video across platforms for over 850 leading global content companies every day,
which he joined in January 2015. As Chief Executive Officer, Mr. Walters oversees Encompass's day-to-day operations
on a worldwide basis. Mr. Walters joined Encompass from The Weather Company, a weather focused media
information services company that owned and operated The Weather Channel, weather.com, intellicast.com, Weather
Underground and WSI, where he served as the Chief Operating Officer from March 2012 to December 2014. Prior to
The Weather Company, he served in a variety of leadership roles at Bloomberg L.P. between 2008 and 2012, most
recently as the Chief Operating Officer of the Bloomberg Industry Verticals Group, responsible for operations, strategy,
business development, and expansion of the premium web-based subscription businesses. Previously, Mr. Walters
was a partner at McKinsey & Co., advising media, entertainment, and investment companies. Mr. Walters holds a
Bachelor of Science from The University of Vermont and an M.B.A from the University of Chicago.
Relevant Qualifications and Experience: Mr. Walters has extensive operational and management experience from his
work as an executive and an advisor to a variety of companies. Mr. Walters’ experience also includes work with
technology businesses that are relevant to the Company’s current operations. The Board believes this experience and
knowledge provides valuable guidance in its oversight obligations as it continues its transformation into a technology
enabled financial solutions company and seeks to meet its strategic growth initiatives.
Class III Directors - Terms Expiring in 2020
Name of Director
Georganne C. Proctor
Mary S. Zappone
Age
61
53
Positions with Blucora
Director Nominee
Director
Director
Since
2017
2015
Georganne C. Proctor was elected to the Board on June 1, 2017. Ms. Proctor is the former Chief Financial Officer
of TIAA-CREF, a national financial services organization, a position she held from 2006 to 2010. From 2003 to 2005,
Ms. Proctor was Executive Vice President, Finance of Golden West Financial Corporation. She served as Chief
Financial Officer of Bechtel Group, Inc. from 1997 to 2002 and as a director of Bechtel from 1999 to 2002. Since 2006,
Ms. Proctor has been a director of Redwood Trust, Inc., a NYSE listed company, where she currently is Chair of the
Compensation Committee and a member of the Audit Committee. From 2013 until 2017, she was a director of
SunEdison, Inc., a NYSE listed company. Since 2011, Ms. Proctor has also served on the Board of Directors of Och-
Ziff Capital Management Group, a NYSE listed company, where she is the Chair of the Audit Committee. Ms. Proctor
holds a B.S. in Business Management from the University of South Dakota and an M.B.A. from California State
University at Hayward.
Relevant Qualifications and Experience: Ms. Proctor has significant financial and accounting experience and has
worked closely with boards and board committees throughout her career, including as the chief financial officer of large
financial institutions. This experience provides her with a thorough understanding of public company reporting
obligations, Sarbanes-Oxley compliance and planning, and treasury and liquidity management. Furthermore, her
service on the audit and compensation committees of other public companies gives her a strong background in the
oversight of financial and corporate governance matters.
Mary S. Zappone has served as a director of Blucora since March 2015. Ms. Zappone has extensive experience as
an executive, including her current tenure as Chief Executive Officer of Brace Industrial Group, an industrial services
company. Prior to joining Brace in October 2017, she served as President and Chief Executive Officer of Service
Champ, a specialty distributor of consumable automotive aftermarket maintenance parts and accessories, from
November 2015 to September 2017. Prior to joining Service Champ, she served as President and Chief Executive
Officer of RecoverCare, a supplier of healthcare equipment, from May 2011 to February 2015. Ms. Zappone worked
at Alcoa, Inc. from 2006 to 2011, serving in a variety of roles, most recently as President of the Alcoa Oil & Gas Group,
where she was responsible for operations, strategy, business development, and expansion of the aluminum alloy
product systems business. During her career, she has also held other senior-level positions at Tyco International,
General Electric, and Exxon, and worked at McKinsey & Co., where she advised companies in improving operating
performance, capital investment, and merger and acquisition strategies. She earned her undergraduate degree from
Johns Hopkins University, and her M.B.A. in Finance at Columbia Business School.
31
Relevant Qualifications and Experience: Ms. Zappone has significant operational and management experience from
her career as an executive and advisor. This experience includes high-level roles at companies that are renowned for
their operational excellence, and the Board believes Ms. Zappone is a valuable resource for both the Board and
management as the Company seeks to optimize its current operations and seeks to meet its strategic growth initiatives.
Independence, Committee and Other Board Information
Independence
NASDAQ listing rules require that a majority of the members of the Board of Directors be independent directors. The
Board of Directors recently undertook its annual review of director independence in accordance with the applicable
rules of NASDAQ. The independence rules include a series of objective tests, including that the director is not employed
by the Company and has not engaged in various types of business dealings with the Company. In addition, the Board
of Directors is required to make a subjective determination as to each independent director that no relationships exist
that, in the opinion of the Board of Directors, would interfere with the exercise of independent judgment in carrying out
the responsibilities of a director.
The Board of Directors has affirmatively determined that each of our directors, excluding Mr. Clendening, is independent
as defined in the NASDAQ rules. Mr. Clendening is not considered independent because he is an employee of the
Company.
Each of the members of the Audit Committee, Compensation Committee, and Nominating and Governance Committee
are independent under the NASDAQ rules. In addition, the Board of Directors has affirmatively determined that each
of the members of the Audit Committee qualifies as independent under the audit committee independence rules
established by the SEC.
There are no family relationships between any of our directors, Director Nominees or executive officers.
Board Committees
The Board of Directors’ committee structure currently consists of three principal committees: the Audit Committee, the
Compensation Committee and the Nominating and Governance Committee. Our Board has adopted a written charter
for each of its committees.
The Audit Committee
The Audit Committee currently consists of the following independent directors: Georganne C. Proctor (Chair), William
L. Atwell and Lance Dunn. The Audit Committee is responsible for providing independent and objective oversight and
review of the Company’s auditing, accounting, and financial reporting processes. Among other functions, the Audit
Committee’s duties include the following:
•
•
Reviewing and approving the appointment, compensation, oversight, and retention of the independent registered
public accounting firm;
Pre-approving all services (audit and non-audit) to be performed by the independent registered public accounting
firm;
• Monitoring the adequacy and effectiveness of accounting and financial controls, including internal control over
financial reporting;
•
•
•
•
Reviewing the audited financial statements and quarterly unaudited financial information and discussing them
with management and the independent registered public accounting firm;
Establishing procedures for receiving and reviewing accounting-related complaints and concerns by whistle
blowers;
Reviewing and monitoring compliance with risk management and investment policies;
Reviewing and pre-approving related person transactions; and
32
•
Reviewing and monitoring compliance with the Code of Ethics and Conduct and recommending changes to the
Code of Ethics and Conduct to the Board as appropriate.
The Board of Directors has determined that each Audit Committee member has sufficient knowledge in reading and
understanding financial statements to serve on the Audit Committee. The Board of Directors has further determined
that Ms. Proctor and Mr. Atwell each qualify as an “audit committee financial expert” in accordance with SEC rules and
the professional experience requirements of NASDAQ. The designation of an “audit committee financial expert” does
not impose upon such person any duties, obligations, or liabilities that are greater than those that are generally imposed
on him or her as a member of the Audit Committee and the Board of Directors, and such designation does not affect
the duties, obligations, or liability of any other member of the Audit Committee or the Board of Directors.
Under the terms of the Audit Committee Charter, the Audit Committee is authorized to engage independent advisors,
at the Company’s expense, to advise the Audit Committee on any matters within the scope of the Audit Committee’s
duties. The Audit Committee may also form subcommittees and delegate its authority to those subcommittees as it
deems appropriate.
The Compensation Committee
The Compensation Committee currently consists of the following independent directors: H. McIntyre Gardner (Chair),
Georganne C. Proctor and Mary Zappone. The Compensation Committee’s duties include the following:
•
•
Evaluating the performance of, and reviewing and approving (or recommending to the Board) the compensation
of, our CEO and other executive officers;
Reviewing and making recommendations to management regarding general compensation goals and guidelines
for employees and criteria by which employee bonuses are determined;
• Monitoring compensation trends;
• Overseeing the independent compensation consultant;
•
•
Reviewing the Company’s compensation policies and practices for all employees, including a review of the
interaction between compensation incentives that could encourage risk-taking and the Company’s risk
management policies and practices; and
Acting as administrator of our stock plans.
Under the terms of the Compensation Committee Charter, the Compensation Committee is authorized to engage
independent advisors, at the Company’s expense, to advise the Compensation Committee on any matters within the
scope of the Committee’s duties. The Compensation Committee may also form subcommittees and delegate its
authority to those subcommittees as it deems appropriate. A description of the considerations and determinations of
the Compensation Committee regarding the compensation of our Named Executive Officers is contained in
“Compensation Discussion and Analysis” below.
The Nominating and Governance Committee
The Nominating and Governance Committee currently consists of the following independent directors: Christopher
Walters (Chair), Steven Aldrich and Mary Zappone. The Nominating and Governance Committee’s duties include:
•
•
•
•
•
Assisting the Board of Directors by identifying prospective director nominees to fill vacancies and recommending
to the Board of Directors the director nominees for the next annual meeting of stockholders;
Reviewing, and recommending to the Board of Directors any appropriate changes to, the Company's Corporate
Governance Guidelines and Director Nomination Policy;
Reviewing proposed changes to the Company’s Certificate of Incorporation and Bylaws and making
recommendations for any such changes to the Board of Directors;
Evaluating the performance and effectiveness of the committees and the Board of Directors as a whole;
Recommending to the Board of Directors membership for each committee;
33
•
Recommending to the full Board of Directors any changes to the non-employee director compensation program;
• Overseeing director orientation and education;
•
Evaluating committee structure and recommending changes to the Board of Directors;
• Monitoring compliance with independence standards by the directors;
• Monitoring, and periodically reporting to the Board of Directors, any significant developments in the law and
practice of corporate governance; and
•
Considering stockholder nominees for election to the Board of Directors as described below under “Director
Nomination Process.”
As part of each Committee's annual review of their charters, in November 2017, oversight of director compensation
was moved from the Compensation Committee to the Nominating and Governance Committee. A description of the
compensation program for our non-employee directors for 2017 is set forth in “Director Compensation” below.
Meeting Attendance
The Board of Directors and each of its committees held the following meetings during 2017:
•
•
•
•
Board of Directors - 9 meetings;
Audit Committee - 9 meetings;
Compensation Committee -12 meetings; and
Nominating and Governance Committee - 9 meetings.
For 2017, each director attended at least 75% of the aggregate number of meetings of the Board of Directors and
committees thereof, if any, on which such director served during the period for which he or she was a director or
committee member. The Board of Directors has not adopted a formal policy regarding directors’ attendance at the
annual meetings of stockholders. In 2017, all of the Company's Board members attended the annual meeting of
stockholders, excluding Mr. Hooper who retired from the Board on the date of the annual meeting.
Leadership Structure
The leadership structure of the Board of Directors consists of Chairman, William L. Atwell, and the chairs of each of
the principal committees of the Board of Directors. The Company’s Bylaws require that the Chairman be an independent
director, and thus the Chairman position is not combined with the Chief Executive Officer position, which is currently
filled by John S. Clendening. The Board of Directors believes that the current leadership structure is appropriate for
the Company because it balances the operational and day-to-day management leadership of the Chief Executive
Officer with the independent oversight provided by the independent Chairman of the Board and the independent chairs
of each of the principal committees. This structure ensures that oversight of risk management and the Company’s
management is distributed among multiple independent directors. The Board of Directors currently believes that this
distribution of oversight is the best method of ensuring optimal Company performance and risk management.
Risk Management
Management is responsible for our day-to-day enterprise risk management activities, and the Board of Directors has
oversight responsibility for managing risk, focusing on the adequacy of the Company’s risk management and mitigation
processes. The Board of Directors has an active role, as a whole and also at the committee level, in overseeing our
risk management. The Board of Directors regularly receives reports from senior management on areas of our material
risk, including our credit, liquidity, operational, cybersecurity, compliance and legal and regulatory risks, and regularly
devotes time during its meetings to review and discuss our most significant risks, management’s responses to those
risks and the mitigation of those risks.
•
The Audit Committee reviews our major financial risk exposures and the steps management has taken to
monitor and control such exposures, and it also oversees our compliance, legal and regulatory risks. The Audit
Committee also oversees and discusses with management our policies and practices with respect to risk
assessment and risk management.
34
•
•
The Compensation Committee oversees the management of risks relating to our executive and non-executive
compensation plans and arrangements and succession planning.
The Nominating and Corporate Governance Committee manages risks associated with general corporate
governance.
While each committee oversees certain risks and the management of such risks, the entire Board of Directors is
regularly informed through committee reports and management presentations about such risks. In addition, the Board
believes that our CEO and Chairman provide the appropriate leadership to help ensure effective risk oversight along
with the Board of Directors and its committees.
Communication with the Board of Directors
The Board of Directors believes that management speaks for the Company. Individual Board members may occasionally
meet or otherwise communicate with our stockholders and other constituencies that are involved with the Company,
but it is expected that Board members will do this with the advance knowledge of management or at the request of
management, absent unusual circumstances or as contemplated by Board committee charters or policy. Stockholders
who wish to communicate with the Board of Directors, or with any individual member of the Board of Directors, may
do so by sending such communication in writing to the attention of the Corporate Secretary at the address of our
principal executive office with a request to forward the communication to the intended recipient. The Corporate Secretary
will generally forward such communication to the Board of Directors or the specific Board member. However, the
Corporate Secretary reserves the right to not forward any material that is inappropriate. In addition, employees may
communicate with the Board through, among other processes, the Company’s internal whistleblower hotline process
administered under the Code of Ethics and Conduct.
Corporate Website
The Company’s corporate website, located at www.blucora.com, contains information regarding the Company, including
information regarding directors, executive officers, and corporate governance documents. That information includes
the Certificate of Incorporation, Bylaws, Committee Charters, Director Nomination Policy, Code of Ethics and Conduct
(which is applicable to all employees, executive officers, and members of the Board of Directors), and the Corporate
Governance Guidelines. The Company uses the corporate website to provide current information to investors, including
information on recent developments and upcoming events. You may also request copies of these documents and other
corporate governance documents available on the website from the Company’s investor relations department at (972)
870-6000.
Director Nomination Process
The Nominating and Governance Committee is responsible for reviewing and recommending nominees to the Board
of Directors for election at the annual meeting and for reviewing and recommending director appointments to fill any
vacancies on the Board of Directors. The Nominating and Governance Committee’s objective, pursuant to its charter,
is to ensure that the Board of Directors is properly constituted to meet its fiduciary obligations to the Company and its
stockholders.
In considering director candidates, the Nominating and Governance Committee seeks the following minimum
qualifications, as set forth in the Company’s Corporate Governance Guidelines and Director Nomination Policy:
•
•
•
•
•
•
Commitment to our business success while maintaining the highest standards of responsibility and ethics;
Representation of the best interests of all of our stockholders and not any particular constituency;
Conscientious preparation for, attendance at, and participation in Board of Directors and applicable committee
meetings;
No personal or professional commitments that would interfere or conflict with a director’s obligations to the
Company and its stockholders;
An established record of professional accomplishment in the director’s chosen field; and
No material personal, financial, or professional interest in any of our competitors that would interfere or conflict
with the director’s obligations to the Company and its stockholders.
35
The Nominating and Governance Committee also considers the professional and personal experience of each nominee
and whether that nominee has expertise relevant to our business objectives. Although the Board of Directors does not
have a formal diversity policy, the Board of Directors desires candidates that contribute to the Board of Directors’ overall
diversity, with diversity being broadly construed to mean a variety of personal and professional experiences, opinions,
perspectives, and backgrounds. During the nomination process, the Board of Directors and the Nominating and
Governance Committee carefully consider this goal with respect to both new nominees and incumbent directors in
accordance with the Company’s Director Nomination Policy. The Board assesses its effectiveness in achieving this
goal during its annual self-assessment process.
The Nominating and Governance Committee generally re-nominates incumbent directors who continue to satisfy the
Nominating and Governance Committee’s criteria for membership on the Board of Directors, continue to make important
contributions to the Board of Directors, and consent to continue their service on the Board of Directors. However, the
Committee regularly considers the needs of the Company and the Board with respect to directors, particularly in light
of the Company's strategic transformation, and if appropriate, the Committee will nominate new directors that best fit
those needs. When nominating new directors, the Committee actively seeks individuals who satisfy its criteria for
membership on the Board of Directors, and the Nominating and Governance Committee may solicit ideas for possible
Board of Directors candidates from a variety of sources, including members of the Board of Directors, Company
executives, stockholders, or individuals known to the members of the Board of Directors or Company executives
through personal or professional relationships. The Nominating and Governance Committee also has the authority to
retain a search firm, at the Company’s expense, to identify or evaluate director candidates at its discretion.
Any stockholder may nominate candidates for election as directors by following the procedures set forth in our Bylaws
and Director Nomination Policy, including the applicable notice, information, and consent provisions. For further
information regarding these procedures, see “Deadline for Receipt of Stockholder Proposals and Director Nominations”
below. Copies of our Bylaws and Director Nomination Policy are available on our corporate website at www.blucora.com.
In addition, pursuant to our Director Nomination Policy, any single stockholder, or group of stockholders, that has
beneficially owned more than 5% of our outstanding common stock for at least one year may propose a director
candidate for evaluation by the Nominating and Governance Committee by delivering a written notice to the Nominating
and Governance Committee that satisfies the notice, information, and consent requirements of our Bylaws and the
Director Nomination Policy. The Committee will evaluate such recommended nominees using the same criteria that it
uses to evaluate other nominees. Any such Board of Directors candidate must be independent of the stockholder in
all respects and must also qualify as an independent director under applicable NASDAQ rules. The notice must be
received by the Nominating and Governance Committee no later than the date that is 120 calendar days before the
anniversary of the date that our Proxy Statement was released to stockholders in connection with the previous year’s
annual meeting. The notice must include, among other things, proof of the required stock ownership, proof of
identification of the stockholder(s) submitting the proposal, and information regarding the proposed Board of Directors
candidate. The notice should be sent to the following address:
Chair, Nominating and Governance Committee
Blucora, Inc.
c/o Corporate Secretary
6333 North State Highway 161
Irving, Texas 75038
The Nominating and Governance Committee did not receive any recommendations for director candidates for the
2018 annual meeting from any non-management stockholder or group of stockholders that beneficially owns more
than 5% of our common stock.
Director Compensation
Non-employee director compensation consists of a mix of cash and equity. The combination of cash and equity
compensation is intended to provide incentives for non-employee directors to continue to serve on the Board of
Directors, to align the interests of the Board of Directors and stockholders, and to attract new non-employee directors
with outstanding qualifications. The CEO, as an employee of the Company, does not receive any compensation for
serving on the Board of Directors and therefore is excluded from the director compensation table below. His
compensation as an employee is included in the Summary Compensation Table.
36
2017 Review
Prior to November 2017, the Compensation Committee, pursuant to its charter, was responsible for overseeing director
compensation. As part of each Committee's annual review of their charters, in November 2017, oversight of director
compensation was moved from the Compensation Committee to the Nominating and Governance Committee.
In early 2017, as part of its review of the non-employee director compensation program, the Compensation Committee
engaged Compensia, Inc. ("Compensia") as its independent compensation consultant to provide advice with respect
to non-employee director compensation matters. In the first half of 2017, Compensia reviewed the Company’s peer
group (as discussed under "Compensation Discussion and Analysis—Compensation Philosophy and Practices") and
provided related advice with respect to director compensation. Compensia also provided advice and information on
material compensation trends to provide a general understanding of current compensation practices. See
“Compensation Discussion and Analysis—Compensation Philosophy and Goals—Role of Compensation Consultant”
for additional information about Compensia.
As a result of this review, in May 2017, the Compensation Committee approved certain changes to its non-employee
director compensation program, including the changes to the cash retainers shown below and a change in the grant
value and mix of equity grants made to our non-employee directors to transition from granting a mix of options and
RSUs to granting solely RSUs, as further described below. Generally, the cash retainers increased and the equity
grant amounts decreased.
Non-Employee Director Compensation Program for 2017
The Company’s non-employee director compensation program for 2017 consisted of annual cash retainers for board,
committee, and chair service, and equity grants, as described further below.
The following table sets forth the changes to the annual cash retainers during 2017:
Groups
Board of Directors
Audit Committee
Compensation
Committee
Nominating and
Governance
Committee
Annual Retainer
Paid to all
Non-Employee
Directors
(including Chair)
Prior to May 2017
Annual Retainer
Paid to all
Non-Employee
Directors
(including Chair)
After May 2017
$20,000
$4,000
$40,000
$10,000
Percent
Change
100%
150%
Annual
Chair Retainer
Prior to May 2017
Annual
Chair Retainer
After May 2017
Percent
Change
$25,000
$14,000
$15,000
(40)%
$22,500
61%
88%
$3,000
$7,500
150%
$8,000
$15,000
$2,000
$4,000
100%
$5,000
$8,000
60%
37
The 2017 equity grants consisted of an initial grant to all newly elected or appointed directors and an annual grant.
Each grant made prior to May 2017 consisted of 30% stock options and 70% RSUs, and each grant made following
May 2017, which included the annual grant made to our directors following our annual stockholders’ meeting on June 1,
2017, consisted solely of RSUs. The number of shares granted is based on a set dollar amount, with the specific
number of shares granted based on the Company’s standard option valuation methodology in the case of stock options
and on the price of our common stock at the time of the grant in the case of RSUs. The following table sets forth the
changes to the equity grants during 2017 (in dollars):
Value of
RSUs
Prior to
May 2017
Value of
Options
Prior to
May
2017
Total Grant
Amount Prior
to May 2017
Value of
RSUs After
May 2017
Total Grant
Amount After
May 2017
Percent
Change
From Prior
to May 2017
Initial equity grants to all newly
elected or appointed non-
employee directors,
including Board Chair (1)
Annual equity grants to all non-
employee directors, including
Board Chair and newly elected
or appointed directors (2)
Additional annual equity grant to
Board Chair (2)
$ 105,000 $ 45,000
$150,000
$
150,000 $
150,000
— %
$ 105,000 $ 45,000
$150,000
$ 35,000 $ 15,000
$50,000
$
$
125,000 $
125,000
(16.67)%
35,000 $
35,000
(30.00)%
(1)
Initial equity grants vest in three equal annual installments beginning on the first anniversary of the election or appointment
date.
(2) Annual grants are made on the date of the annual meeting of stockholders and vest in full on the first anniversary of the grant
date provided that the grantee continues to be a member of the Board or the Chairperson, as applicable, on such date. In
the case of a newly appointed director who is not appointed on the date of the annual meeting of stockholders, a pro rata
portion of this annual grant will be awarded based on the date of appointment.
The Company reimburses all directors for expenses incurred in attending meetings or performing their duties as
directors. The Company does not provide any perquisites to directors.
The following table sets forth information concerning the value of compensation paid or awarded to each non-
employee director (including our current and former directors) for the year ended December 31, 2017 pursuant to
the director compensation program described above:
Current Directors
Steven Aldrich
William L. Atwell
Lance G. Dunn
H. McIntyre Gardner
Georganne C. Proctor
Christopher W. Walters
Mary S. Zappone
Former Directors
David Chung (3)
John E. Cunningham (4)
Steven W. Hooper (5)
Elizabeth J. Huebner (6)
Andrew M. Snyder (7)
Annual Retainer
Fees
(Paid in Cash)
Stock Awards (1)(2)
Option Awards (1)(2)
Total
$25,667
$43,167
$38,000
$35,167
$38,390
$38,000
$38,250
$5,000
$11,250
$16,000
$34,125
$10,000
$274,975
$297,175
$124,994
$254,151
$274,975
$124,994
$124,994
—
—
—
$124,994
—
—
$55,060
—
$52,393
—
—
—
—
—
—
—
—
$300,642
$395,402
$162,994
$341,711
$313,365
$162,994
$163,244
$5,000
$11,250
$16,000
$159,119
$10,000
(1) The dollar amount for stock awards (which consists of RSUs) and option awards is the grant date fair value computed in
accordance with Accounting Standards Board Accounting Standards Codification Topic 718, Compensation - Stock
38
Compensation ("ASC 718"), excluding the effect of any estimated forfeitures. These amounts reflect the Company’s
accounting expense and do not correspond to the actual value that will be realized by the director. Assumptions used in the
valuation of stock and option awards granted in 2017 are discussed in “Note 12: Stock-Based Compensation” of the Notes
to Consolidated Financial Statements (Part II, Item 8) in our Annual Report on Form 10-K for the year ended
December 31, 2017.
(2) For Messrs. Aldrich, Atwell, Gardner and Ms. Proctor, includes an initial grant of equity that was made in 2017, as well as a
2017 annual grant that was made to all non-employee directors following our 2017 annual meeting of stockholders.
Messrs. Atwell and Gardner also received a pro-rated annual grant for their service prior to the 2017 annual meeting of
stockholders. The initial grants and pro-rated annual grants made to Messrs. Atwell and McIntyre were made prior to the
director compensation changes described above and consisted of 30% options and 70% RSUs. The initial grants made to
Mr. Aldrich and Ms. Proctor consisted solely of RSUs. Initial non-employee director grants vest in three equal annual
installments beginning on the first anniversary of each director's the election or appointment date. The vesting for the annual
RSU grants is described above.
(3) Mr. Chung retired from the Board on February 28, 2017.
(4) Mr. Cunningham retired from the Board on February 28, 2017.
(5) Mr. Hooper did not stand for re-election and retired from the Board on June 1, 2017.
(6) Ms. Huebner retired from the Board on August 11, 2017. When Ms. Huebner retired from the Board of Directors, this grant
was forfeited.
(7) Mr. Snyder retired from the Board on May 25, 2017.
All equity grants that were made in 2017 were awarded under the 2015 Plan. Stock awards consist of RSUs, with each
RSU representing the right to receive one share of our common stock upon vesting. Option awards consist of options
to purchase shares of our common stock. The Company does not coordinate the timing of equity grants with the release
of material non-public information, as grants are made as of the annual meeting date or election or appointment date.
The following table sets forth information concerning the aggregate number of equity awards outstanding for each of
our current non-employee directors as of December 31, 2017.
Current Directors (1)
Steven Aldrich
William L. Atwell
Lance G. Dunn
H. McIntyre Gardner
Georganne C. Proctor
Christopher W. Walters
Mary S. Zappone
Aggregate number
of unvested RSUs
13,316
14,091
6,053
12,397
13,316
6,053
8,485
Aggregate number of options
Unvested
Vested
—
8,157
—
8,157
—
—
3,648
—
2,502
71,863
1,877
—
42,388
35,292
(1) Our former directors shown in the previous table did not have any equity outstanding as of December 31, 2017. When each
of Messrs. Chung, Cunningham and Snyder retired from the Board, their outstanding unvested equity awards that were
granted following our annual meeting in 2016 under the 2015 Plan were accelerated on a pro-rated basis based on the time
they served as Board members from the date of grant until their last date of service on the Board.
39
Director Stock Ownership Guidelines
The Board has adopted stock ownership guidelines that are applicable to all non-employee directors. The guidelines
were originally adopted effective as of January 1, 2014 and amended on June 1, 2017. As a result of the non-employee
director compensation changes described above, which included an increased cash retainer from $20,000 to $40,000,
the Board updated these guidelines such that the ownership multiple decreased from 6X to 4X under the guidelines
but the overall ownership requirement amount actually increased from $120,000 to $160,000.
Thus, under the terms of the amended guidelines, all non-employee directors are expected to acquire and hold shares
of the Company’s common stock equal in market value to at least 4X the value of the annual retainer paid to non-
employee directors (excluding the additional retainers for the Chairman of the Board and the chairs of the Board's
committees). As described above, the amount of this retainer was $40,000 for 2017, and non-employee directors will
be expected to hold shares with a market value of at least $160,000.
Non-employee directors who were members of the Board on January 1, 2017 are expected to attain the minimum
ownership amount by no later than June 1, 2019. Non-employee directors who joined the Board after January 1, 2017
are expected to attain the minimum ownership amount within five years after the date of their initial appointment or
election to the Board. The Compensation Committee is responsible for administering and applying these guidelines.
40
AUDIT COMMITTEE REPORT
The following Report of the Audit Committee shall not be deemed to be “soliciting material” or to be “filed” with the
SEC, and the information in this report shall not be incorporated by reference into any future filing under the Securities
Act of 1933, as amended (the “Securities Act”), or the Exchange Act, except to the extent that the Company specifically
incorporates it by reference into such filing.
Audit Committee Members
Each member who serves on the Audit Committee is an independent director as defined in the NASDAQ rules, meets
the independence criteria in the applicable SEC rules and meets the NASDAQ’s financial knowledge requirements
set forth in the NASDAQ rules. Our Board of Directors has determined that Ms. Proctor and Mr. Atwell are “audit
committee financial experts” under SEC rules and meet the financial sophistication and professional experience
requirements set forth in the NASDAQ rules.
Audit Committee Responsibilities
Management is responsible for Blucora’s internal control over financial reporting, preparation of financial statements,
and the financial reporting process. The Company’s independent registered public accounting firm, which for 2017
was Ernst & Young LLP, is responsible for performing an independent audit of Blucora’s consolidated financial
statements and internal control over financial reporting in accordance with standards set by the Public Company
Accounting Oversight Board (“PCAOB”), and to issue reports thereon. The Audit Committee monitors and oversees
these processes. The Audit Committee members rely, without independent verification, on the information provided to
them, and on the representations made to them, by management and the independent registered public accounting
firm.
In this context, during 2017, the Audit Committee:
•
Discussed the overall scope and plans for audits with Ernst & Young LLP;
• Met and held discussions with Ernst & Young LLP, both with and without management present, to discuss the
results of the audits, management’s evaluation of Blucora’s internal control over financial reporting, and Ernst &
Young LLP’s opinion thereof, and the overall quality of Blucora’s financial reporting;
•
•
•
•
Reviewed and discussed the quarterly and annual financial results prior to the publication of those results and
the filing of those results on Form 8-K;
Discussed the matters required to be discussed with Ernst & Young LLP by the statement on Auditing Standards
No. 1031, as amended (AICPA, Professional Standards, Vol. 1 AU section 380), as adopted by the PCAOB in
Rule 3200T and SEC S-X Rule 2-07;
Reviewed and discussed the unaudited and audited financial statements with management and Ernst & Young
LLP, including Ernst & Young LLP’s opinion on the audited financial statements; and
Received the written disclosures and letter from Ernst & Young LLP required by applicable requirements of the
PCAOB regarding the independent registered public accounting firm’s communications with the Audit Committee
concerning independence and discussed with Ernst & Young LLP its independence.
Based on the reviews and discussions referred to above, the Audit Committee recommended to the Board of Directors
that the audited financial statements be included in the Annual Report on Form 10-K for the year ended December 31,
2017, filed with the SEC.
Members of the Audit Committee
Georganne C. Proctor, Chair
William L. Atwell
Lance Dunn
41
FEES PAID TO INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM FOR 2017 AND 2016
Fees
The aggregate fees billed by the Company’s current independent registered public accounting firm, Ernst & Young
LLP, to the Company and its subsidiaries during 2017 and 2016 were as follows:
Audit fees
Tax fees
All other fees
Total fees
2017
1,480,116 $
—
2,160
1,482,276 $
2016
1,583,186
5,000
1,995
1,590,181
$
$
Audit fees reflect fees billed for the annual audits of the Company’s consolidated financial statements, the review of
interim financial statements and internal control over financial reporting for the year indicated. Tax fees were for state
tax services in 2016. All other fees consist of fees for our annual subscription to Ernst & Young LLP’s Global
Accounting & Auditing Information Tool, which the Company’s staff used when performing technical accounting
research.
Pre-approval Policy
The Audit Committee pre-approves all audit and non-audit services to be performed by our independent registered
public accounting firm. As part of its pre-approval procedures, the Audit Committee considers whether the provision
of any proposed non-audit services is consistent with the SEC’s rules on auditor independence. The Audit Committee
has considered whether the provision by Ernst & Young LLP of the non-audit services described above is compatible
with Ernst & Young LLP’s independence. After consideration, the Audit Committee has determined that Ernst & Young’s
independence as an auditor has not been compromised by its provision of these services. All audit and non-audit
services provided by Ernst & Young in 2016 and 2017 were pre-approved by the Audit Committee in accordance with
the foregoing policy.
TRANSACTIONS WITH RELATED PERSONS
Policies and Procedures
Under our Related Party Transaction Policy, proposed related person transactions (which generally include any
transactions by the Company or any subsidiary with an employee or director of the Company, a relative of an employee
or director, or any entity with which an employee or director has a material interest) must be disclosed to our Chief
Financial Officer. If the Chief Financial Officer determines that the transaction is material, or otherwise of such a nature
that it should be reviewed and approved by the Audit Committee under the guidance provided in our Related Party
Transaction Policy, the Audit Committee must review and approve such related person transactions in advance. In
determining whether to approve a related person transaction, the Audit Committee considers whether the terms of the
related person transaction are fair to the Company at the time of authorization; the business reasons for the Company
to enter into the related person transaction; whether other comparable transactions with non-related parties were
considered, and if so, the terms of such transactions and the reason for the selection of the related person transaction;
the value of the transaction to the Company and to the related person; whether the related person transaction would
impair the independence of a previously independent director; and any other factors that are relevant to a determination
of whether the terms of the transaction, and the process that led to it, are fair to the Company.
Related Person Transactions
In December 2017, the Company fully repaid $3.2 million of a note payable with the former President and Chief
Executive Officer of HD Vest, Roger Ochs, that arose in connection with the acquisition of HD Vest. (Roger Ochs
ceased serving as the President and Chief Executive Officer of HD Vest on February 28, 2017.) The note was scheduled
to be paid over a three-year period, with 50% paid in year one ($3.2 million paid in December 2016), 40% to be paid
in 2017, and 10% to be paid in 2018. Certain members of HD Vest management rolled over a portion of the proceeds
they would have otherwise received when we acquired HD Vest into shares of the acquisition subsidiary through which
42
the Company consummated the purchase of HD Vest. The former President of HD Vest sold a portion of his shares
to the Company in exchange for the note. The note bore interest at a rate of 5% per year.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Each of the following directors served on the Compensation Committee for all or a portion of 2017: H. McIntyre Gardner
(Chair), Georganne C. Proctor, Chris Walters and Mary Zappone. Each of the following former directors served on
the Compensation Committee for a portion of 2017 prior to leaving the Board of Directors: Steven Hooper and Elizabeth
Huebner. None of the current or former members of the Compensation Committee who served during 2017 is or has
been an officer or an employee of the Company. During 2017, none of our executive officers served on the board of
directors or compensation committee (or a committee performing similar functions) of any other company that had one
or more executive officers serving on our Board of Directors or our Compensation Committee.
INFORMATION REGARDING EXECUTIVE OFFICERS
Executive Officers
The following table sets forth certain information as of April 9, 2018 with respect to our current executive officers:
Name
John S. Clendening
Davinder Athwal
Sanjay Baskaran
Ann J. Bruder
Robert D. Oros
Mathieu Stevenson
Position
President, CEO and Director
Age
55
50 Chief Financial Officer
44
President, TaxAct, Inc.
52 Chief Legal Officer & Secretary
52 Chief Executive Officer, HD Vest
39 Chief Marketing Officer
John Clendening was appointed to serve as the Company’s President and CEO on April 4, 2016, and he was also
appointed as a member of the Board on the same date. See "Proposal One—Election of Directors on page 12 for a
discussion of his experience and qualifications.
Davinder S. Athwal was appointed to serve as the Company's Chief Financial Officer ("CFO") in February 2018. Prior
to joining the Company, Mr. Athwal, served as Vice President Finance and Chief Financial Officer of UGI International,
which is a business segment of UGI Corporation through which it conducts its foreign operations, from 2015 to February
2018, and he served as Vice President, Chief Accounting Officer and Chief Risk Officer of UGI Corporation, a holding
company that is traded on the New York Stock Exchange that distributes, stores, transports and markets energy
products and related services, from 2008 through 2015. Mr. Athwal holds a bachelor’s degree in Accounting and
Finance from Kingston University in London, a master’s degree in Accounting from Long Island University and is a
certified public accountant.
Sanjay Baskaran was appointed President of TaxAct in January 2017. Prior to joining the Company, Mr. Baskaran,
served as General Manager, North America Credit Cards at Amazon, one of the world’s largest online retailers, from
June 2015 through January 2017. Prior to that, Mr. Baskaran was employed by Visa, Inc. from 2011 through 2013
where he served as Vice President, Analytics and Insights, North America from 2013 through 2015 and the Lead for
Consumer Credit & Merchant Analytics, North America from 2011 through 2013. Prior to that he was employed by
HSBC from 2002 through 2011 in roles with progressively increasing responsibility, the most recent of which were
Director, Global Cross Sell Marketing Strategy from 2009 through 2011 and Director, Head of Operations Strategy &
Business Transformation, HSBC Finance, Canada from 2007 through 2009. He also held positions at Deloitte &
Touche as a management consultant and Dr. Reddy’s Group as an executive in the company’s Latin America
International Marketing group. Mr. Baskaran received a Bachelor of Technology in chemical engineering from Osmania
University India and earned an M.B.A. with a concentration in Supply Chain Management and Marketing from Michigan
State University.
Ann J. Bruder was appointed to serve as the Company's Chief Legal Officer and Secretary in June 2017. Prior to
joining Blucora, Ms. Bruder served as the Vice President, General Counsel, Chief Compliance Officer and Corporate
Secretary at Airlines Reporting Corporation, or ARC, which is a leading provider of data, products and services to the
travel industry, from 2015 through 2017. She served as the President of Global Strategic Services, LLC, a boutique
strategic advisory firm, from 2014 through 2015. Prior to that, she was employed by Commercial Metals Company
43
(“CMC”), a publicly traded global company with sales and operations in more than 40 countries, from 2007 through
2014. At CMC, Ms. Bruder served as the Senior Vice President of Law, Government Affairs and Global Compliance,
General Counsel and Corporate Secretary from mid-2009 through 2014 and the Deputy General Counsel from 2007
through mid-2009. Earlier in her career, she served in various legal roles at CARBO Ceramics Inc., American Airlines,
Inc., Continental Airlines, Inc. and the law firm of Thompson Coburn LLP. Ms. Bruder has a Juris Doctorate degree
from Washington University and Bachelor of Arts degree in Journalism and Public Relations with a minor in Economics
from the University of Wyoming.
Robert D. Oros was appointed Chief Executive Officer of HD Vest in February 2017. Prior to joining the Company,
Mr. Oros served as Executive Vice President and Head of the Registered Investment Advisors segment at Fidelity
Clearing & Custody Solutions, a unit of Fidelity Investments, from 2012 through 2017. He served as a National Sales
Manager at Trust Company of America from 2010 through 2012, Executive Vice President and Head of Custom Clearing
Services at LPL Financial from 2009 through 2010, and Senior Divisional Manager of Schwab Advisor Services at
Charles Schwab from 2002 through 2007. Mr. Oros serves on the Board of Directors of the Invest in Others Charitable
Foundation and the Board of Directors of the Foundation for Financial Planning. He has a Bachelor of Science in
Finance and Economics from Central Michigan University.
Mathieu Stevenson was appointed as the Company's Chief Marketing Officer in October 2016. Prior to joining the
Company, Mr. Stevenson served as Chief Strategy Officer for Catalina Marketing Corporation, a marketing services
company from 2015 through 2016. From 2014 through 2015, Mr. Stevenson was an Associate Partner, Market Leader
at McKinsey Solutions, part of McKinsey Company, a world-wide management consultant firm, and from 2012 through
2014 he served in various roles of increasing responsibility, the most recent of which was General Manager, Cities,
for HomeAway Inc. From 2006 through 2012, Mr. Stevenson served as Engagement Manager, Member of Marketing
and Innovation Practices for McKinsey & Company. Mr. Stevenson is a graduate of the University of Texas and the
Fuqua School at Duke University.
Principal Accounting Officer
John Palmer, 51, became the Company’s Principal Financial and Accounting Officer on November 1, 2017 when our
former Chief Financial Officer, Eric M. Emans, who had been serving in those roles left the Company. Mr. Palmer
continues to serve as the Company's Principal Accounting Officer, and Mr. Athwal, who joined the Company on
February 21, 2018 as the Company's Chief Financial Officer, now serves as the Company's Principal Financial Officer.
Mr. Palmer originally joined the Company on February 20, 2017 and is not an executive officer, but pursuant to Item
402 of Regulation S‑K he is included as a Named Executive Officer because he served as our Principal Financial
Officer for a portion of 2017.
Mr. Palmer has served as the Company’s Vice President - Accounting since February 2017. Prior to joining the
Company, Mr. Palmer served as Vice President and Chief Accounting Officer at Sizmek, Inc., a global technology
company that provides technology-enabled advertising services, from the time it was spun-off from Digital Generation,
Inc. in February 2014 until February 2017. Mr. Palmer served as Vice President and Controller at Digital Generation,
Inc. from March 2003 to February 2014. Prior to that, Mr. Palmer held a variety of controller positions for technology
companies, including Entrust Technologies, Inc. and Nortel Networks, Inc. He began his career working at each of
KPMG and Ernst & Young.
44
COMPENSATION DISCUSSION AND ANALYSIS
Introduction
This Compensation Discussion and Analysis (“CD&A”) explains how our Compensation Committee designed and
implemented our 2017 compensation programs with respect to our Named Executive Officers who are set forth below
and included in our Summary Compensation Table (“NEOs”). This CD&A describes the means through which the
alignment of compensation elements to our objectives was achieved and the degree to which our performance affected
executive compensation.
Executive Summary
Our executive compensation program is generally designed to attract, motivate and retain highly skilled executives with
the business experience that management and our Compensation Committee believe are necessary for achievement
of our long-term business objectives to operate and grow our Wealth Management and Tax Preparation businesses
that operate under HD Vest and TaxAct, respectively.
In addition, as a result of the move of our corporate headquarters from Washington State to Texas and in connection
with our Strategic Transformation (as defined below) into a technology-enabled financial solutions company, our 2017
executive compensation program was focused on recruiting new executive talent during 2017, which resulted in the
successful hiring of our Chief Executive Officer of HD Vest, our President of TaxAct, our Chief Legal Officer (collectively,
the "New Executive Officers") and our Vice President-Accounting (who served as our Principal Financial and Accounting
Officer for part of 2017 but does not serve as an executive officer) (together with the New Executive Officers, the "New
NEOs")).
Our NEOs
Our NEOs included in our Summary Compensation Table are set forth below. Additional information regarding our
current executive officers is set forth on page 43 under "Information Regarding Executive Officers."
Name
Title
John S. Clendening
President, CEO and Director
Date
Joined on April 4, 2016
John D. Palmer (1)(2)
Vice President - Accounting (Principal Financial and
Accounting Officer)
Became Principal Financial and
Accounting Officer November 1, 2017
Eric M. Emans (1)
Former Chief Financial Officer and Treasurer ("Former CFO")
Robert D. Oros
Chief Executive Officer of HD Vest
Sanjay Baskaran
President of TaxAct
Ann J. Bruder
Chief Legal Officer and Secretary
Ceased Serving as CFO on
November 1, 2017
Joined on February 28, 2017
Joined on January 30, 2017
Joined on June 19, 2017
(1) Mr. Emans, who served as the Company's Chief Financial Officer, Principal Financial Officer and Principal Accounting Officer, ceased
serving in such roles effective November 1, 2017. Mr. Palmer became the Company’s Principal Financial and Accounting Officer on
November 1, 2017. Mr. Palmer continues to serve as the Company's Principal Accounting Officer, and Mr. Davinder S. Athwal, who
joined the Company on February 21, 2018 as the Company's Chief Financial Officer, now serves as the Company's Principal Financial
Officer.
(2) Mr. Palmer originally joined the Company on February 20, 2017 and is not an executive officer, but pursuant to Item 402 of Regulation S‑K
he is included as a Named Executive Officer because he served as our Principal Financial Officer for a portion of 2017.
45
Financial and Business Highlights of 2017
2017 Financial Highlights
• 2017 was a strong year where we achieved double digit growth in nearly all of our key metrics while significantly
strengthening our balance sheet, our platform and our executive leadership team.
• We increased Total Revenue by 12% from 2016.
• We increased Net Income and Net Income per share by 141% and 137%, respectively, from 2016.(2)
• We increased non-GAAP Consolidated Adjusted EBITDA by 7% from 2016. (2)
• We increased non-GAAP EPS by 38% from 2016. (2)
• We grew assets under management by 21% from 2016 to $12.5 billion and total assets under administration by
14% from 2016 to $44.2 billion at HD Vest.
• We achieved the 20th consecutive year of revenue growth at TaxAct, growing 15% from 2016.
• During 2017, we lowered debt by $90 million, reduced net leverage ratio to 2.8x from 4.0x and lowered interest
rate by 300 bps.
• We announced a clearing firm transition that is expected to generate $60-$100 million in incremental HD Vest
segment income over a 10-year term.
2017 Business Highlights
• Since 2015 we have been successfully undergoing a strategic transformation into a technology-enabled financial
solutions company focused on wealth management and comprised of TaxAct and HD Vest and have divested
our Search and Content and E-Commerce businesses (the "Strategic Transformation").
•
•
In connection with our Strategic Transformation and our operating as “One Company,” during 2017, we relocated
our corporate headquarters from Bellevue, Washington to Irving, Texas.
In connection with this relocation and our Strategic Transformation, we had a leadership transition resulting in a
new executive team, including the New Executive Officers, who were all hired in 2017.
(1) Financial measures used in our annual bonus plan.
(2) See Annex A - Non-GAAP Reconciliation for a reconciliation of Adjusted EBITDA and non-GAAP EPS to Net Income and Net
Income per share.
46
2017 Executive Compensation
2017 Executive Compensation Highlights
• At Risk Compensation: Our NEOs had a substantial portion of their compensation at risk - 90% of our CEO's
total target direct compensation was at risk.
• Pay for Performance Alignment: A substantial portion of NEO compensation was comprised of annual incentive
bonus tied to financial metrics and stock options - 69% of our CEO's total target direct compensation was bonus
and stock options.
• 2017 Annual Bonus Plan is Performance-Based: Annual bonus plan was tied to Company financial performance
metrics - 20% of our CEO's total target direct compensation was a performance-based bonus.
• 2017 Equity Grants: At least half (and for certain NEOs, including our CEO, 70%) of the 2017 long-term equity
awards were comprised of stock options, which are inherently tied to the performance of our stock.
• New NEOs: Compensation for each New NEO was set at a level to be competitive in the new market and industry
where we compete for talent after a review of peer market data and other factors.
2017 Executive Compensation Elements at a Glance
Base Salary
Annual Bonus Plan
Stock Options
Time-Based RSUs
Short-Term Element
Long-Term Element
Fixed
Performance-Based (at risk)
Value Based on Stock
Price (at risk)
2017 Mix of Pay: 90% of our CEO's and 79% of our average NEOs'* total target direct compensation for 2017 was at
risk
* The Average NEO Pay Mix does not include (i) Mr. Emans because he announced that he would not be relocating with the Company
in 2016, and his 2017 compensation reflected the transition, and (ii) Mr. Palmer because he does not serve as an executive officer
of the Company and his compensation therefore is not reflective of the compensation structure of our executive officers.
Additional detail regarding the 2017 compensation of our NEOs is provided in the Summary Compensation Table and
throughout our CD&A.
47
2017 Say-on-Pay Vote had 97.5% Approval
We hold advisory votes on the compensation of our NEOs (“say-on-pay”) at every annual meeting of stockholders. Our
Board of Directors values the opinions of our stockholders and believes an annual advisory vote allows our stockholders
to provide us with their input on our executive compensation program. We conducted an advisory vote on the frequency
of the advisory say-on-pay vote at our 2017 Annual Meeting. Following the recommendation of our stockholders in
2017, we will continue to hold our advisory say-on-pay vote on an annual basis.
Of the stockholders who cast a vote in 2017 for or against the approval of the Company’s compensation of NEOs, 97.5%
voted for approval. Although the Compensation Committee did not make any specific changes as a result of such say-
on-pay vote for 2017 compensation, the Compensation Committee does monitor and consider the results of say-on-
pay votes and will continue to consider results from future advisory votes as appropriate when making compensation
decisions.
Realizable 2017 Pay
The table above compares the 2017 target total compensation for our CEO to the actual realizable pay at the end of
2017. The "Target Total Compensation" bonus and equity amounts shown above are the targets set by our Compensation
Committee, and the equity amounts approximately reflect the grant date fair values reported in the Summary
Compensation Table below. The "Realizable Pay" bonus amount reflects the actual bonus paid to our CEO for 2017,
and the equity amounts assume 100% acceleration of the 2017 equity grants as of December 31, 2017 and the closing
price of the common stock on the last day of 2017, which was $22.10. Since none of these awards had actually vested
at that time, the amount actually realized by Mr. Clendening, if any, upon vesting and exercise may vary from this figure.
The Compensation Committee believes that an NEO’s actual compensation should reflect the Company’s performance,
and the table above illustrates our pay for performance alignment. For example, in 2017, our stock price increased
approximately 50%, and Mr. Clendening's realizable pay was approximately 38% higher than his target total
compensation shown above.
The substantial majority of the CEO's compensation is composed of variable cash bonus awards and equity awards
that derive their value based on Company financial performance and the performance of the price of our common stock.
As a result, much of our CEO's target total compensation opportunity is “at risk,” and there can be no assurance that
the target amount of the bonuses will be awarded, that the grant date fair values reported for the equity awards will
reflect their actual economic value, or that comparable amounts will ever be realized by our CEO.
48
2018 Executive Compensation
Our Company and our business have undergone significant changes since late 2015, and as a result of this transition,
our Compensation Committee began evolving our executive compensation practices during 2017 to ensure that we are
able to attract and retain top caliber executive talent in the new markets and industries in which we now compete for
talent. Below is a summary of executive compensation highlights for our 2018 program:
2018 Executive Compensation Highlights
• New Peers: We updated our peer group in light of the market and industry in which we now compete for talent.
• New Philosophy: Our Compensation Committee adopted a new philosophy to provide an attractive market-
based compensation program tied to performance and aligned with the interests of stockholders. Our executive
compensation program is designed to be competitive, aligned, balanced and sound.
• 2018 Annual Bonus Plan is Performance-Based: Annual bonus plan is tied to Company financial
performance metrics, as well certain human resources foundation metrics and balanced scorecard metrics in
order to help us move toward an increased focus on operational objectives that are key to our growth strategy
and operating as "One Company."
• 2018 Equity Grants included Performance-Based RSUs: Equity grants were comprised of 25%
performance-based RSUs, 25% stock options and 50% time-based RSUs. We transitioned away from the
heavy use of stock options and began granting performance-based RSUs that are based on the achievement
of pre-established financial performance metrics and are more in line with our long-term strategy.
• Adoption of Executive Stock Ownership Guidelines: The Board adopted stock ownership guidelines for our
executive officers of 5X base salary for the CEO and 3X base salary for all other NEOs.
• Competitive Pay Practices: We believe the changes made to our executive compensation program for 2018
allow us to be competitive with companies with whom we compete for talent and to better reflect market
expectations for "at-risk" and performance-based compensation.
2018 Mix of Pay: 90% of our CEO’s and 78% of our average NEOs'* total target direct compensation for 2018 is at risk
2018 Executive Compensation Elements at a Glance
Base Salary
Annual Bonus Plan
Stock Options
Performance-
Based RSUs
Time-Based RSUs
Short-Term Element
Long-Term Element
Fixed
Performance-Based (at risk)
Value Based on Stock Price
(at risk)
See "2018 Compensation Changes" for additional information regarding our 2018 Executive Compensation program.
49
Executive Compensation Best Practices
What we do:
ü Pay for Performance: A significant portion of our NEO
performance-based
to align our executive
compensation
compensation. This helps
compensation with the interests of our stockholders.
at-risk,
is
ü Pay Determinations: We engage in a rigorous process to
establish total direct compensation and its components,
including reviewing market and survey data sourced from
our peer group of companies and general industry, and
utilizing an independent compensation consultant.
ü Annual Say-on-Pay Vote: We hold an advisory vote on
executive compensation annually and take the results of
that vote into account when setting and reviewing our
compensation practices and policies. We have had very
positive results from our advisory vote on executive
compensation each year the vote has been held.
What we don't do:
û Tax Gross-up Provisions for Change-In-Control: We
do not have tax gross-up provisions that would allow
for a gross-up payment for excise and other taxes
that could become payable as a result of payments
made in connection with a change-in-control.
û No excessive perquisites and personal benefits: We
do not provide significant perquisites and personal
benefits that are not available to all other employees.
û No Pledging or Hedging: Our Insider Trading Policy
does not permit margining, pledging, hedging, short
sales of or trading options related to our stock by
any director, officer or employee.
ü Clawback Policy: We have a clawback policy that would
allow us to recoup certain compensation and awards paid
to our NEOs in certain circumstances in the event that there
is a restatement of our financial results.
û No dividends on stock options or SARs or
unearned awards: No dividends or dividend
equivalents accrue on stock options or SARs or
are paid on unearned awards.
ü Double Trigger Change-in-Control: Following a change-in
control, our executive officers would only be entitled to
severance benefits under their employment agreements if
their employment is terminated without cause or if they
terminate employment with us for good reason in
connection with the change-in-control.
û No repricing or granting of discounted stock options
or SARs: Our 2015 Plan (and our proposed 2018
Plan) prohibits the repricing of stock options and
SARs without stockholder approval and does not
permit the granting of stock options or SARs with
exercise prices below fair market value.
ü Stock Ownership Guidelines: We have stock ownership
guidelines that require stock ownership that is 5X the annual
base salary for our CEO, 3X the annual base salaries for
our other executive officers and 4X the annual retainer for
our directors.
û No share recycling and minimum vesting: Our
2015 Plan (and our proposed 2018 Plan) does not
permit liberal share recycling or liberal share
counting and has minimum vesting requirements
for awards (no awards can vest prior to one-year
from the date of grant).
ü Risk Management: We perform regular risk management
assessments for our compensation and benefit programs
related to executive and non-executive compensation
practices in order to ensure that our compensation policies
and practices are not reasonably likely to have a material
adverse effect on us.
50
2017 Executive Compensation Philosophy and Practices
Compensation Philosophy and Practices
Our compensation philosophy for 2017 was to have an executive compensation program that is designed to increase
stockholder value by attracting and retaining executives who can execute on our goals and by aligning the interests
of those executives with the goals and interests of our Company and our stockholders. Our 2017 executive
compensation program applied this philosophy as follows:
•
•
•
•
Align Management to Operational and Financial Goals: Align the compensation of both existing and
incoming executive management to our key operational and financial goals. Specifically, our 2017 annual
performance-based cash bonus plan allocated a significant percentage of overall target compensation for
executives to annual variable cash incentive bonuses based on operational and financial targets. In 2017,
our CEO and Former CFO had a significant portion of their compensation dependent upon achievement of
specific Company goals, and our New NEOs were also able to benefit from the achievement of Company
goals in connection with the annual cash bonus plan.
Stockholder-Management Alignment Through Long-Term Equity Grants: Ensure stockholder-
management alignment through the use of long-term equity grants that have a value that is tied directly to the
price of our common stock. In 2017, at least half (and for certain NEOs, including our CEO, 70%) of the long-
term equity awards were comprised of stock options, which are inherently tied to the performance of our stock,
and the other portion was comprised of RSUs.
Cash and Equity Compensation: Our historical philosophy and practices were to set total cash compensation
below market with above market equity compensation and a significant portion of equity granted in the form
of options. We believe these historical practices were appropriate when we were seeking talent in the
Washington State internet-based market. However, in connection with our transition to a Dallas-based
technology-enabled financial solutions company, we began evolving our philosophy and practices during 2017
when hiring the New Executive Officers and setting 2018 executive compensation. In connection with this
evolution, we began to focus more on having an attractive market-based compensation program in our new
market and industry so that we could attract top caliber executive talent. When hiring the New Executive
Officers during 2017, we began shifting from our previous cash and equity compensation practices of below
market cash compensation with above market equity compensation that has a larger focus on options and
began to focus more on market competitive compensation. See "2018 Compensation Changes" for additional
information regarding changes to our executive compensation program for 2018.
Attract and Retain Talent: Provide compensation that is both fair to the Company and the executive and
attracts and retains talented and qualified executives through the use of competitive but reasonable salaries,
short-term incentives and equity grants. In 2017 and in connection with hiring the New NEOs, attracting talent
was a very important element of our compensation program. In setting compensation for each of these New
NEOs, our compensation program had to be competitive in the market and industry where we compete for
talent. See "Employment Agreements" for a discussion of how compensation was set for each of our New
Executive Officers during 2017.
Compensation Process
The Compensation Committee solicits and receives input from a number of sources, including management and its
independent compensation consultant (as further discussed below) when making executive compensation decisions.
Although the Compensation Committee considers these sources of information, it uses its own discretion, based on
the experience, knowledge, and diligence of its own members, to determine the compensation elements used in the
compensation program and the mix of each element for each of the executives. This discretion is, by its nature,
subjective. There is no set formula for how the Compensation Committee determines exactly how much value it places
on any one element, or how any one element will compare to another element. The Board has selected the
Compensation Committee members for their experience and abilities in determining compensation, and the
Compensation Committee feels that a subjective determination by its members, after consideration of objective sources,
is the most appropriate way for it to exercise its duties to the Board, to the Company and to stockholders.
51
The Compensation Committee's Role in Establishing Compensation
Our Compensation Committee is composed entirely of independent directors and administers our executive officer
compensation program. In 2017, the Compensation Committee consulted regularly with its independent compensation
consultant, our CEO, Former CFO, CLO and Chief Human Resources Officer ("CHRO") regarding the design and
implementation of the 2017 executive compensation program.
Management's Role in Establishing Compensation
The Compensation Committee believes it is appropriate to consult with management on executive compensation
matters because they each have significant involvement in and knowledge of the Company’s business goals, strategies,
and performance and are able to provide input and feedback. The CEO provides recommendations with respect to
the executive officers' compensation, but he does not participate in any deliberations relating to his own compensation.
The Compensation Committee considers management's recommendations, but retains full discretion in determining
executive compensation.
The CEO, Former CFO, CLO and CHRO were regularly invited to attend Compensation Committee meetings during
2017. The Compensation Committee generally meets in executive session outside the presence of the CEO and other
management. In carrying out its oversight responsibilities, the Compensation Committee regularly reports to the Board
on the actions it has taken, as well as confers with the Board on compensation matters, as necessary.
The Company’s legal advisors, human resources department, and corporate accounting department also support the
Compensation Committee in developing and administering the Company’s compensation plans and programs.
Role of Compensation Consultant
The Compensation Committee's independent compensation consultants were regularly invited to attend Compensation
Committee meetings during 2017.
Compensia: Compensia served as the Compensation Committee's independent compensation consultant during
2016 and for the first half of 2017. During that time, Compensia provided advice to the Compensation Committee with
respect to non-employee director and executive officer compensation matters.
During the first half of 2017, Compensia assisted the Compensation Committee with: advice and recommendations
regarding the Company’s compensation philosophy and strategies; advice on director and executive compensation
levels and practices, including review and recommendations on director, CEO and other executive officer compensation,
including the compensation of our New Executive Officers; advice on the Company’s peer group; guidance on the
design of our compensation plans and CEO/director stock ownership guidelines; evaluation of performance metrics
and peer performance; recommendations regarding our 2015 Plan; and periodic reports to the Compensation
Committee on market and industry compensation trends and regulatory developments.
Meridian: In connection with the Strategic Transition of the Company to a technology-enabled financial services
company, in July 2017, the Compensation Committee engaged a new independent compensation consultant, Meridian
Compensation Partners, LLC ("Meridian"), to provide advice on executive compensation matters for the remainder of
2017 and for 2018.
Following engagement by the Compensation Committee in July 2017, Meridian assisted the Compensation Committee
with: advice on selecting a new peer group for the Company; advice and recommendations regarding proposed changes
to Company’s compensation philosophy and strategies for 2018 executive compensation matters; advice on executive
compensation levels and practices; guidance on the design of our executive compensation plans for 2018; advice on
establishing Executive Officer Stock Ownership Guidelines; determination of performance metrics for 2018 executive
compensation; recommendations regarding our 2015 Plan and proposed 2018 Plan; and periodic reports to the
Compensation Committee on market and industry compensation trends and regulatory developments.
Engagement of Compensia and Meridian: The Compensation Committee solely approved all engagement fees
and other retention terms of each of Compensia and Meridian and determined each of their responsibilities for the
period for which they served as the independent compensation consultant. Neither Compensia nor Meridian provided
any services to the Company during 2017 other than its services as an independent compensation consultant to the
Compensation Committee. The Compensation Committee assessed the independence of each of Compensia and
52
Meridian pursuant to applicable SEC and NASDAQ rules and concluded that each of their work for the Compensation
Committee does not raise any conflict of interest.
Benchmarking Against Peers
In late 2016, the Compensation Committee, with the assistance of Compensia, reviewed the Company's peer group
and determined that the same peer group that was used in 2016 should be used for 2017 executive compensation
decisions. The peer group recommended by Compensia and approved by the Compensation Committee for 2017
consisted of the following 17 companies, which were in the internet software and services, asset management and
custody banks, application software and specialized consumer services industries, with a similar revenue range and
market cap.
Angie's List*
Bankrate, Inc.
Cohen & Steers, Inc.
Financial Engines, Inc.
Liquidity Services, Inc.
DHI Group, Inc.
GAMCO Investors, Inc.
Monster Worldwide*
Bottomline Technologies
Ebix, Inc.
IntraLinks Holdings*
Virtus Investment Partners, Inc.
Callidus Software, Inc.
Envestnet, Inc.
Lifelock*
Web.com Group, Inc.
WisdomTree Investments, Inc.
* Each of these companies have been acquired since the peer group was determined.
Compensia provided peer group comparison data for the Company’s executive officers with respect to salary, annual
cash incentive bonus, and equity grants, and the Compensation Committee used this data for background and context
when setting the amounts of the various compensation elements for executive officers for 2017, but did not tie any
compensation decisions directly to this data or set compensation to fall within a certain percentile of our peers.
It is important to note that in determining executive compensation, the Compensation Committee does not solely rely
on comparative data from the peer group. Such comparative data provides helpful market information about our peer
group, but the Compensation Committee believes in utilizing a number of resources, such as published compensation
surveys and other available proxy and compensation data, to ensure that our executive compensation is competitive
in the market where we compete for talent. The Compensation Committee also considers pay for performance,
individual capability, potential to create value, capabilities, experience, and performance and internal parity objectives
in setting compensation. All applicable information is reviewed and considered in aggregate, and the Compensation
Committee does not place any particular weighting on any one factor.
Compensation Decisions Made in 2017
In 2017, the key elements of our executive compensation program for the NEOs consisted of base salary, target annual
cash incentive bonus, and long-term equity incentive awards that were comprised of options and RSUs.
In designing the executive compensation program, the Compensation Committee took into consideration our financial
and business success, the success our Strategic Transformation and the need to attract top caliber executives. In line
with this compensation philosophy, the Compensation Committee determined the amounts of each compensation
element with the goal of attracting and retaining top caliber executives and with the desire to align the financial interests
of those executives with the interests of our Company and our stockholders.
53
Annual Base Salary
General
Each executive receives an annual base salary that is intended to provide a minimum fixed level of cash compensation
that provides security and preserves an employee’s commitment during downturns in the relevant industries and/or
equity markets. The Compensation Committee considers a competitive base salary to be an important factor in retaining
and attracting key employees in a competitive marketplace, but it also balances the base salary with performance-
based compensation elements to ensure that executive incentives are aligned with the Company’s and stockholder's
objectives. The base salary is initially established by the Compensation Committee pursuant to employment or other
agreements with the executives and are set at a level that the Compensation Committee believes is competitive in the
market place. Any annual changes thereafter may be based on an evaluation of many factors, such as our performance
and annual cash compensation budget, each executive’s individual performance, criticality of the role, experience of
the executive, comparative market data, and internal pay equity.
2017 Annual Base Salaries
The only NEOs who were employed by us at the beginning of 2017 and eligible for an increase in base salary for 2017
were Messrs. Clendening and Emans. In December 2017, the Compensation Committee determined the base salary
increases for Messrs. Clendening and Emans for 2017, which are set forth below along with the annual base salaries
for our New NEOs for 2017:
Name
John S. Clendening
John D. Palmer
Eric M. Emans
Robert D. Oros
Sanjay Baskaran
Ann J. Bruder
2017
2016
% Change
$
$
$
$
$
$
550,000 $
220,000
367,770 $
375,000
350,000
350,000
500,000
N/A
358,800
N/A
N/A
N/A
10.0%
N/A
2.5%
N/A
N/A
N/A
Mr. Clendening's increase in base salary reflects the Compensation Committee's review of his performance for 2016,
which included a review of his impact on our successful financial and operational results for the year, leadership within
our Company, accomplishments that affected our performance and achievement of our strategic goals throughout the
year.
As further described under "Employment Agreements" the annual base salaries for the New NEOs were set at the
time they joined our Company at a level believed to be competitive in the market where we compete for talent.
Annual Short-Term Incentive/Bonus Payments
General
Executives are generally provided the opportunity to earn an annual performance-based cash incentive bonus. This
bonus provides incentive for the achievement of our operational and financial goals, assists in retaining, attracting,
and motivating employees in the near-term, and provides a balance to the volatility of short-term equity prices and the
related impact on the value of an executive’s equity holdings. Target annual bonuses, as a percentage of salary, are
generally established upon commencement of an executive’s employment and are reviewed each year and updated
when the Compensation Committee deems it appropriate. The performance measures for the 2017 bonus plan were
tied to important Company financial metrics, such as revenue and Adjusted EBITDA, for all NEOs, and additional
operational and financial metrics related to our Wealth Management business and Tax Preparation business for the
leaders of those businesses.
2017 Annual Bonus
2017 Executive Bonus Plan: Our 2017 Executive Bonus Plan (the "2017 Executive Bonus Plan"), which was an
annual cash incentive bonus plan that our Compensation Committee approved in February 2017, allowed potential
54
bonus payments to be made to each of our executive officers based on the operational and financial metrics applicable
to each executive officer under the 2017 Executive Bonus Plan as described further below.
2017 Bonus Plan for Non-Executive Employees: Because Mr. Palmer is not an executive officer, he was eligible
to receive a bonus payment under our 2017 bonus plan for non-executive employees (together with the 2017 Executive
Bonus Plan, the "Bonus Plans"), which allowed for Mr. Palmer to receive a potential bonus payment based on our
financial metrics set forth in the plan as described further below.
Target Bonus and Metrics: The target bonus for each NEO under the 2017 Bonus Plans was based on a percentage
of base salary, which was set forth in the Bonus Plans (and was consistent with the bonus targets set forth in the new
employment agreements with each of our New Executive Officers further described under "Employment
Agreements" (the "New Executive Officer Employment Agreements").
•
•
•
CEO: Mr. Clendening's bonus target under the 2017 Executive Bonus Plan was increased from 100% to 200%
of base salary for 2017. This increase was made to ensure Mr. Clendening's compensation was competitive
in the market where we compete for talent and was a result of Mr. Clendening's performance during 2016 and
his leadership that allowed us to successfully achieve certain financial performance and strategic goals for
2016. Because this element of compensation is at risk, the Compensation Committee believed that the increase
would allow us to better compensate Mr. Clendening for results while keeping Mr. Clendening's interest aligned
with our stockholders. This increase also reflects the beginning stages of our shift during 2017 away from
targeting below market cash compensation and towards setting market competitive compensation levels for
our executive officers.
New NEOs: As further described under "Employment Agreements" the target bonus for the New NEOs was
set at the time they joined our Company at a level believed to be competitive in the market where we compete
for talent. In addition, the New Executive Officer Employment Agreements and/ or the 2017 Executive Bonus
Plan required that each of the New Executive Officers would receive 2017 bonus payments that are pro-rated
to reflect the number of days of the executive’s employment in 2017 and will be no lower than the pro-rated
amount of the executive’s target bonus (such that they were guaranteed their pro-rated target bonus for 2017).
Because they were not employed for the full year, which somewhat limited their influence on certain strategies
that were in place before they became NEOs, our Compensation Committee believed that guaranteeing this
minimum bonus amount for these NEOs was appropriate.
Former CFO: When the 2017 bonus targets were set, Mr. Emans had previously announced that he would
not be relocating with the Company's headquarters during 2017. As such, Mr. Emans was eligible for a prorated
bonus for 2017 for the time he served as our CFO. Mr. Emans' bonus target as a percent of salary did not
increase from 2016.
Under the Bonus Plans, the actual bonus to be paid following the end of 2017 varies depending on the percentage of
achievement of each element of the bonus plan that is applicable for each NEO for the year. Each element is calculated
separately, based upon the performance for the applicable metric, the weighting of that element, and the target bonus
amount. The range of possible bonus achievement for each component is 0% to 150% of the target.
For each participating NEO, the target bonus percentage, the financial and/or operational performance metrics used,
and the weighting of each metric are set forth in the table below:
Name
John S. Clendening
John D. Palmer
Eric M. Emans
Robert D. Oros
Sanjay Baskaran
Ann J. Bruder
Bonus Performance Metrics (% of total bonus calculation)(1)
Target bonus
percentage
(% of base
salary)
200%
30%
60%
100%
60%
60%
Blucora
Revenue
50%
50%
50%
—
—
50%
Blucora
Adjusted
EBITDA
50%
50%
50%
20%
20%
50%
Segment
Revenue(2)
—
—
—
30%
30%
—
Segment
Income(2)
—
—
—
30%
30%
—
Other
Segment
Metrics (2)
—
—
—
20%
20%
—
55
(1) The operational and financial metrics selected by the Compensation Committee for the 2017 Executive Bonus Plan reflect
the responsibilities of each NEO. For Messrs. Clendening, Emans, Palmer and Ms. Bruder, the metrics were tied to our overall
Company performance, and for Messrs. Oros and Baskaran, a portion of the metrics were tied to our overall Company
performance and a portion of the metrics were tied to metrics related to the businesses that they led.
"Other Metrics" includes TaxAct Paid E-Files in our Tax Preparation segment and Wealth Management segment assets under
management ("AUM") net inflows. See "2017 Performance Targets vs. Actual Results" below for additional information
regarding each of these metrics.
(2)
2017 Bonus Performance and Payout Scale: The actual bonus percentages are calculated using the following scale,
with the maximum payout being 150% of target:
Applies to all metrics:
Range of Financial Performance in Bonus
Payout Scale
(% of financial target)
Threshold of 80% to Maximum of 120%
Range of Bonus Payout
(% of target bonus)
50% at Threshold to Cap of 150%
The target payment was set to be challenging and to require significant effort by our NEOs for their achievement. The
threshold amount shown above is based on meeting the financial performance goals at the threshold range.
2017 Performance Targets vs. Actual Results (dollars in thousands except the number of TaxAct Paid E-files):
The specific Company financial targets for 2017 for each metric used in calculating the NEO bonus payouts are set
forth in the table below along with the Company’s actual performance for each of those metrics.
Performance Goal
Blucora Revenue (2)
Blucora Adjusted EBITDA (3)
Wealth Management Segment Net Revenue(4)
Wealth Management Segment Income(4)
Wealth Management Segment AUM Net Inflows(5)
Tax Preparation Segment Revenue(4)
Tax Preparation Segment Income(4)
TaxAct Paid E-files(#)(6)
$
$
$
$
$
$
$
Target
264,754
106,075
109,662
48,279
570,000
154,601
76,856
2,981
$
$
$
$
$
$
$
Actual
274,355
105,161
113,417
53,446
794,185
160,938
75,120
2,608
(1)
Achievement %
104%
100%
104%
111%
140%
105%
98%
88%
(1) Per the terms of the Bonus Plans, the achievement percent is rounded up to the nearest whole percentage point.
(2) Blucora Revenue is comprised of our Tax Preparation Segment Revenue and Wealth Management Segment Net Revenue
(which is Wealth Management Segment Revenue net of advisor payout (cost of sales)).
(3) Reflects consolidated externally reported Adjusted EBITDA, adjusted for internally developed software, bonus accruals and
other non-operational items. The Compensation Committee uses Adjusted EBITDA (subject to certain adjustments) because
it believes it is an important measure of our operating performance. See Annex A - Non-GAAP Reconciliation for a reconciliation
of Adjusted EBITDA to Net Income and for additional information regarding this non-GAAP measure.
(4) Reflects externally reported Income or Revenue for each of our Wealth Management segment and our Tax Preparation
segment, with Income for each segment adjusted for internally developed software and bonus accruals. In addition, the Tax
Preparation segment included an allocation of budgeted growth initiative investments.
(5) Reflects new AUM inflows less outflows for our Wealth Management segment.
(6) Reflects the number of accepted federal tax e-files made through our software and online services for which we received
payment.
56
2017 Target Bonus and Performance Achievement: The following table sets forth, for each of the participating
NEOs, the target annual incentive bonus for 2017, the achievement percentage for each element of the 2017 cash
incentive bonus plan, and the earned annual bonus for 2017 (in dollars and as a percent target), which is based on
the payout scale set forth above.
Name
John S. Clendening
John D. Palmer
Eric M. Emans
Robert D. Oros
Sanjay Baskaran (2)
Ann J. Bruder
Target Annual Bonus
(% of Base Salary)
2017 Earned Annual Bonus
% of Base Salary
Target Dollar
Value
(1)
Actual Dollar
Value Earned
Earned Bonus as
a % of Target
200% $
1,100,000 $
1,122,000
30% $
60% $
100% $
60% $
60% $
56,965 $
184,407 $
315,413 $
193,326 $
112,770 $
58,104
188,095
361,147
193,326
115,025
102.0%
102.0%
102.0%
114.5%
100.0%
102.0%
(1) The target shown for all NEOs, excluding Mr. Clendening, reflects a pro rata target bonus for 2017. The bonus payments
were pro-rated to reflect the number of days of employment during 2017.
(2) The combined Performance Target Achievement of all of Mr. Baskaran's applicable performance metrics under the 2017
Executive Bonus Plan did not meet the target level of achievement for a target bonus payout; however, per the terms of the
Executive Bonus Plan and because he was a New NEO who joined the Company in 2017, Mr. Baskaran was guaranteed a
minimum payment of his pro-rated target bonus for 2017.
2017 Additional Bonus Payments
Sign-on Bonuses Under Employment Agreements: As further described under "Employment Agreements," each
of Mr. Baskaran and Ms. Bruder received an initial signing bonus in the amounts of $210,000 and $200,000, respectively,
when they joined our Company in 2017.
Mr. Palmer's Bonus: In connection with his agreement to serve as our Principal Financial and Accounting Officer
when Mr. Emans ceased serving in those roles on November 1, 2017, we agreed to pay Mr. Palmer a $50,000 bonus
that was paid during 2018.
Annual Long-Term Equity Grants
General
The Company’s long-term equity incentive program is designed to be performance-oriented, competitive and flexible,
providing incentive for executives to focus on long-term fundamentals and create long-term stockholder value. While
the equity program is primarily intended to maintain stockholder-management alignment, the equity awards made
under the program also serve to attract highly qualified executives, promote a team environment and maintain the
Company’s competitive position compared to the compensation programs of companies that are part of our peer group
and other companies with whom we compete for talent. The equity awards also have high retention value because
they vest over a period of time, typically three years, and unvested awards are generally forfeited when an executive’s
employment ends.
The 2017 long-term equity incentive program consisted of the following types of grants:
•
•
Stock Options: Stock options provide incentive for the achievement of stock price growth. They provide a
high level of alignment with stockholders because individuals do not realize substantial value from stock options
unless our stock price significantly improves following grant. Stock options represent the right to purchase
shares of our common stock. Stock options were granted at an exercise price equal to the closing price of our
common stock on the relevant date of grant.
RSUs: RSUs provide upside incentive when the value of the Company’s stock appreciates, but also provides
some protection in down markets. Because RSUs vest into shares of the Company's common stock, they
serve to create stockholder-management alignment. Each RSU vests over a certain period of time as long as
57
the employee remains employed by us, and each RSU represents the right to receive one share of our common
stock upon vesting.
The volatility and the related potential for incentivizing excessive risk-taking inherent in stock options is partially offset
by the relative stability of the RSU grants, which vest into shares of common stock and thus increase or decrease in
value in direct proportion to any increase or decrease in the price of the common stock.
The Compensation Committee does not grant equity awards in anticipation of the release of material nonpublic
information. Similarly, the Company does not time the release of material nonpublic information based on equity award
grant dates.
Grant Practices for 2017
Mr. Clendening: The factors considered by the Compensation Committee in determining the size and mix of
Mr. Clendening's equity grant for 2017 included past equity granting practices (including our past practice of having a
significant portion of equity in the form of stock options), previous equity awards made to Mr. Clendening, comparative
market data with reference to our peer group (see peer group discussion) and the market where we compete for talent,
and the Compensation Committee’s subjective evaluation of Mr. Clendening's performance and his leadership that
allowed us to successfully achieve certain financial performance and strategic goals for 2016. Mr. Clendening's 2017
annual equity grant was approved in December 2016 with a grant date of the first trading day in 2017, which was
January 3, 2017.
New NEOs: The equity grants for each of the New NEOs were made at the time they joined our Company at a level
believed to be competitive in the market where we compete for talent. In addition, the equity grants received by our
New NEOs in 2017 were made as an inducement in order to incentivize each New NEO to join our Company, and
these grants were larger than what we expect our annual equity grants to be for each New Executive Officer going
forward. See "Employment Agreements" for additional information.
2017 NEO Grant Summary
The 2017 NEO equity grants are set forth in the following table:
Name:
John S. Clendening
John D. Palmer
Eric M. Emans (2)
Robert S. Oros
Sanjay Baskaran
Ann J. Bruder
Aggregate
Grant Value of
Equity Grants
3,775,000
$
$
$
$
$
150,000
—
1,500,000
1,500,000
700,000
Share Amounts Awarded
(1)
RSU (#)
Options (#)
76,779
2,830
—
28,846
49,833
16,129
555,372
19,811
—
201,923
154,485
51,612
Percentage of Total Equity Award
Options
as a % of Total
Grant
70%
RSUs
as a % of Total
Grant
30%
70%
—
70%
50%
50%
30%
—
30%
50%
50%
(1) These grants vest over a three-year period, with 33.33% vesting on the first anniversary of the date of grant and approximately
16.67% vesting at the end of each six-month period thereafter.
(2) Mr. Emans did not receive an annual equity grant for 2017 because, in connection with the relocation of the Company's
headquarters, he had previously announced that he would not be relocating with the Company at the time the 2017 annual
equity grants were made.
See “Grants of Plan-Based Awards in 2017” under “Compensation of Named Executive Officers” below for further
information regarding the equity grants made to NEOs in 2017.
58
Executive Employment Agreements; Severance Payments
Employment Agreements
The Company uses employment agreements to retain and attract highly qualified executive officers in a competitive
market and currently has employment agreements with all of its executive officers (which includes all of the NEOs,
excluding Mr. Palmer who serves as our Principal Accounting Officer but is not an executive officer). We believe that
employment agreements ensure continued dedication of executives in case of personal uncertainties or risk of job
loss and ensure that compensation and benefits expectations are understood and satisfied. The employment
agreements generally include an initial base salary, a target incentive bonus percentage that serves as the basis for
the annual cash incentive bonus plan and an equity grant upon hire. The employment agreements also include specific
terms regarding severance payments and other benefits, if any, due to the executive under various employment
termination circumstances. See "Potential Payments upon Termination or Change in Control" for additional information
regarding the severance payments each of our NEOs could receive under their employment agreements.
CEO: When Mr. Clendening joined our Company in April 2016, we entered into an employment agreement with him
that was set to expire April 3, 2019. On September 5, 2017, we amended Mr. Clendening's employment agreement
so that it will continue in effect until April 3, 2021 and will automatically renew for successive one-year terms thereafter.
Mr. Clendening's employment agreement provides that he is entitled to, among other things: (i) an annual base salary
of not less than $500,000; (ii) a target bonus of at least 100% of base salary; (iii) an initial grant of equity that he
received when he joined our Company in 2016 and he will be eligible to receive additional annual equity grants;
(iv) reimbursement for relocation and other related expenses up to a maximum of $135,000; and (vii) reasonable
attorneys’ fees and expenses related to the negotiation and preparation of the employment agreement up to a maximum
of $30,000. Mr. Clendening's employment agreement also provides for certain severance payments and other benefits.
See "Potential Payments upon Termination or Change in Control" for additional information regarding the severance
payments Mr. Clendening is eligible to receive under his employment agreement.
New Executive Officer Employment Agreements: When each of our New Executive Officers joined our Company
in 2017, we entered into the New Executive Officer Employment Agreements that provided for the following
compensation packages that were set at a level that the Compensation Committee believed to be competitive in the
market where we compete for talent:
Name
Robert D. Oros (4)
Sanjay Baskaran
Ann J. Bruder
Annual
Bonus
Target as a
% of Base(1)
Annual
Base
Initial Equity Grant
Amount (2)
Signing
Bonus
Relocation/
Commuting
Assistance (3)
$375,000
100%
$1,500,000
$—
$525,000
$350,000
$350,000
60%
60%
$1,500,000
$210,000
$150,000
$700,000
$200,000
$150,000
Total
$2,410,001
$2,210,001
$1,400,001
(1) The New Executive Employment Agreements state that the 2017 bonus payments are to be pro-rated to reflect the number of
days of the executive’s employment in 2017 and will be no lower than the pro-rated amount of the executive’s target bonus.
(2) Mr. Oros' initial equity grant was comprised of 70% options and 30% RSUs, and Mr. Baskaran and Ms. Bruder's initial equity
grants were comprised of 50% options and 50% RSUs.
(3) Reflects the maximum amount to be paid by us (which may be grossed-up for taxes) for relocation-related expenses for the
executive.
(4) In addition Mr. Oros may be reimbursed up to $10,000 for any legal expenses incurred as a result of his employment with us.
Determination of Compensation for Each New Executive Officer: When determining the compensation of each
of our New Executive Officers in 2017, our Compensation Committee consulted with our independent compensation
consultant at the time, which was Compensia, to provide an analysis of each executive officer's proposed compensation
package. Compensia provided peer group comparison data (based on the peer group discussed under "Role of
Compensation Consultant ") for each of the New Executive Officers with respect to salary, annual cash incentive bonus
and equity grants. Our Compensation Committee considered the information provided by Compensia along with other
information, such as publicly-available compensation information from the companies with whom we compete for talent,
prior compensation of the executive being hired, experience, the type of business or function for which each New
Executive Officer would be responsible and internal pay parity. In order to attract and hire the New Executive Officers
59
in 2017, we had to provide market competitive compensation packages in the new market and industry where we
compete for talent and did not establish them to fall within our historical cash and equity compensation guidelines
described above. We also did not establish New Executive Officer compensation to fall within a certain percentile of
our peer group for 2017. In addition, the equity grants received by our New NEOs in 2017 were made as an inducement
in order to incentivize each New NEO to join our Company, and these grants were larger than what we expect our
annual equity grants to be going forward. See "2018 Compensation Changes" for additional information regarding
the evolution of our executive compensation program and the changes made for 2018 executive compensation.
See "Potential Payments upon Termination or Change in Control" for information regarding the severance payments
these New Executive Officers are eligible to receive under the New Executive Employment Agreements.
Mr. Palmer: Because Mr. Palmer is not an executive officer, we have not entered into an employment agreement with
him and he is eligible for severance under our severance plan that covers all employees other than executive officers.
Mr. Palmer's compensation package was set at a level believed to be competitive for his position. See "Potential
Payments upon Termination or Change in Control" for additional information.
Mr. Emans: Mr. Emans entered into a Consulting Agreement (the "Emans Consulting Agreement") with the Company
when he ceased serving as our Chief Financial Officer on November 1, 2017. Pursuant to the Emans Consulting
Agreement, Mr. Emans agreed to provide transition consulting services to the Company through February 28, 2018.
In consideration for such services, the Company agreed to pay Mr. Emans $50,500 per month, or $202,000, and a
final lump-sum of $550,000 on or after March 1, 2018. In addition, the Emans Consulting Agreement extended the
option exercise period for all outstanding vested stock options to the earlier of the option expiration date or June 30,
2019. See "Potential Payments upon Termination or Change in Control" for additional information regarding the
payments Mr. Emans received under his employment agreement with us when he left the Company on November 1,
2017.
Changes to Compensation Philosophy and Executive Compensation Practices
2018 Compensation Changes
•
•
Recent Changes to our Business and Company: Our Company and our business have undergone
significant changes since late 2015, and as a result of this transition, which includes the changes noted below,
our Compensation Committee began evolving our executive compensation practices during 2017 to ensure
that we are able to attract and retain executive talent in the new markets and industries where we now compete
for talent:
◦
◦
◦
Strategic Transformation: Our Strategic Transformation, which was announced in October 2015,
has transformed us from a Washington-based company that operated a portfolio of internet businesses
to a Dallas, Texas-based technology-enabled financial solutions company through which we offer
wealth management and tax preparation products and services through HD Vest and TaxAct,
respectively.
New Executive Officers: As a result of our Strategic Transformation and the relocation of our
headquarters, we have recently hired a new executive team, which includes the New Executive Officers
who were all hired in 2017.
New Board Members: We have four new Board members who began serving in 2017. Our new
Board members, two of whom currently serve as members of our Compensation Committee (including
our Compensation Committee Chair), have brought new ideas and a fresh perspective to our executive
compensation program. See "Information Regarding the Board of Directors" for additional information
regarding our new Board members.
Changing Philosophy and Practices During 2017: We believe our historical cash and equity compensation
philosophy of setting total cash compensation below market with above market equity compensation and a
significant portion of equity granted in the form of options was appropriate when we were seeking talent in the
Washington internet-based market. However, in connection with our transition to a Dallas-based technology-
enabled financial solutions company, we began evolving our philosophy and practices during 2017 when hiring
the New Executive Officers. In connection with this evolution we began to focus more on having an attractive
60
market-based compensation program in our new market and industry so that we could attract top caliber
executive talent in the financial and technology industries.
Change in Compensation Consultants: In July 2017, our Compensation Committee engaged a new
independent compensation consultant to assist in reviewing our executive officer compensation philosophy
and practices in light of our new business strategy and in the new market and industry in which we now operate.
New Philosophy: The philosophy underlying our executive compensation plans is to provide an attractive
and market-based compensation program tied to performance and aligned with the interest of stockholders.
We believe our executive compensation program should have the following elements and adhere to the
following principles:
◦
◦
◦
◦
Competitive: Enable us to attract, motivate and retain high caliber executive officers who will maximize
the potential of the business over time.
Aligned: Clear alignment of executive compensation to the short-term and long-term financial
outcomes and value-drivers of the business.
Balanced: Foster sustained growth and alignment through a balanced approach to compensation
design.
Sound: Encourage achievement of our strategy and goals through policies and structure that reinforce
desired behaviors that are in line with our purpose, vision, ethics and values.
New Peers: Our new compensation consultants reviewed our peer group and determined that, in light of our
Strategic Transformation and the market and industry in which we now operate, our peer group should be
updated. See "2018 Peers for Benchmarking" below for additional information regarding our new peer group
that was used for 2018 compensation decisions.
2018 Executive Compensation: After we established a new peer group, our Compensation Committee
approved changes to our executive compensation program for 2018 that it believes allows us to be competitive
with our peer group and with the companies with whom we compete for talent and to reflect market expectations
for at-risk compensation so that we are able to retain our New Executive Officers and attract additional executive
officers when necessary (including our Chief Financial Officer who was hired in early 2018). In addition, these
changes also allowed for an internal calibration of executive compensation, as each of the New Executive
Officers hired in 2017 came from different industries with different expectations of compensation. We believe
that the executive compensation changes that were made for 2018 will assist us in achieving our strategy of
operating as "One Company" and will help us to be competitive with our peers and in the market and industry
where we compete for talent while also focusing on internal pay parity.
2018 Compensation Mix: The 2018 compensation mix is comprised of the following, with a significant portion
continuing to be performance-based and be "at-risk" (the CEO continues to have 90% of his compensation
"at-risk" for 2018):
•
•
•
•
•
◦
◦
Base: In 2018, our base salaries increased as a result of our review of the peer group and of the
market and industries where we compete for talent. For example, our CEO's base salary increased
approximately 9% to $600,000.
Bonus: In 2018, we continued to tie a substantial portion of the executive officer's compensation to
the Company's short-term bonus plan, which is tied to the achievement of our operational and financial
goals as well as specific individual goals and assists in retaining, attracting, and motivating employees
in the near-term. Similar to 2017, the operational and financial metrics selected by the Compensation
Committee for the 2018 annual bonus plan reflect the responsibilities of each NEO, such that they
are tied to our overall Company performance or certain metrics related to the different businesses that
the executive oversees or is involved. Our 2018 annual bonus plan metrics are also tied to certain
human resources foundation metrics and balanced scorecard metrics, which we believe will help us
move toward an increased focus on operational objectives that are key to our growth strategy and
also moves toward operating as "One Company." The CEO's target bonus as a percentage of his
base salary did not increase in 2018 from 2017, which continues to keep a significant portion of his
cash compensation performance-based.
61
◦
Equity: The most significant change to our executive compensation program for 2018 was with respect
to the type and mix of equity granted to our executive officers. For 2018, we shifted from our equity
grants being comprised of options and RSUs to the following mix of equity:
▪
▪
▪
25% performance-based RSUs that are eligible to vest on January 1, 2021, subject to the
Company achieving a certain level of non-GAAP earnings per share during 2020;
25% stock options that vest equally each year over a three-year period; and
50% time-based RSUs that vest equally each year over a three-year period.
This transition in equity mix was made in order for our executive compensation to be competitive with
peers and to reflect market expectations for "at-risk" and performance-based compensation. We have
de-emphasized options, which have a value based on the market, and have moved toward
performance-based RSUs, which are based on Company performance metrics that the Compensation
Committee believes are in line with our long-term strategy and better align management with long-
term stockholder value. In connection with this transition, it is the Compensation Committee's long-
term goal to continue to evolve to a higher mix of performance-based RSUs and to transition away
from the use of stock options, which we believe is competitive with our peers and in line with our
compensation philosophy.
•
Adoption of Executive Stock Ownership Guidelines: In February 2018, the Board adopted stock ownership
guidelines that are applicable to all of our executive officers effective as of January 1, 2018. These guidelines
require that our executive officers acquire and hold shares of our common stock equal in market value to the
multiple of each of their base salaries as follows: 5X for CEO and 3X for all other NEOs.
2018 Peers for Benchmarking
In late 2017, the Compensation Committee, with the assistance of Meridian, reviewed the Company's peer group and
determined that, in light of our Strategic Transformation, our peer group should be updated for 2018 executive
compensation decisions. The peer group recommended by Meridian and approved by the Compensation Committee
for 2018 consisted of the following 17 companies, which are in the asset management and custody banks, investment
banking and brokerage and internet software and services industries, with a similar revenue range and market cap.
AllianceBernstein Holding L.P.
Eaton Vance Corp.
Interactive Brokers Group, Inc.
NIC Inc.
Artisan Partners Asset Management Inc. Envestnet, Inc.
Investment Technology Group, Inc. Oppenheimer Holdings Inc.
Benefitfocus, Inc.
Federated Investors, Inc.
j2 Global, Inc.
Virtus Investment Partners, Inc.
Cowen Inc.
Financial Engines, Inc.
Ladenburg Thalmann Financial
Services Inc.
Waddell & Reed Financial, Inc.
WisdomTree Investments, Inc.
Compensation Policies and Practices
In addition to the compensation elements and decisions discussed above in this CD&A, the Company has a
number of compensation policies that are designed to retain and incent executives and to protect Company and
stockholder interests.
Clawback Policy
Pursuant to the Company’s Executive Incentive Compensation Recoupment Policy, if the Company is required
to prepare an accounting restatement due to its material noncompliance with financial reporting requirements
under the U.S. securities laws, then the Company shall, to the extent permitted by law, require reimbursement
from current and former executive officers for incentive compensation awarded or received by them at any time
during the three-year period preceding the date on which the Company is required to prepare the restatement,
to the extent such executive officer is determined to have engaged in fraud or intentional illegal conduct materially
contributing to such restatement, as determined by the Board of Directors in its sole discretion. The right to
recoupment set forth in the policy includes recoupment of both cash and equity and is in addition to any other
rights that the Company may have against any executive officer, including any remedies at law or in equity. The
62
policy is administered by the Compensation Committee. In addition, our 2015 Plan and our proposed 2018 Plan
include provisions that allow us to clawback awards in accordance with this policy.
Prohibition Against Short Selling, Hedging, or Pledging of Company Securities
Our Insider Trading Policy prohibits any director, officer, or other employee from engaging in short sales of, or
otherwise hedging, the Company’s securities. This prohibition includes any transaction, direct or indirect, involving
financial instruments that are designed to hedge or offset any decrease in the market value of our stock. This
prohibition applies to all securities issued by the Company, including equity and debt. The Company’s Insider
Trading Policy also prohibits directors, officers, and employees from pledging the Company’s securities as
collateral for loans.
Perquisites and Personal Benefits
We have historically maintained a conservative approach to providing perquisites and personal benefits to
executive officers. The limited perquisites and personal benefits offered have been carefully selected to ensure
that there is an indirect benefit to the Company and that the value provided to employees is not excessive. In
addition, most perquisites and personal benefits offered to executives are generally offered to all employees.
Our perquisites and personal benefits include 401(k) employer’s match, our contribution to the executive's health
savings account, mobile communications reimbursement, a health club subsidy, and life insurance premiums.
In addition, Messrs. Clendening, Oros and Baskaran and Ms. Bruder, pursuant to their employment agreements,
also received reimbursement of their relocation expenses during 2017. A description and the attributed costs
of these perquisites and personal benefits for the NEOs for 2017 are included in the “All Other Compensation”
column of the Summary Compensation Table and described in the notes to that table.
Executive Officer Stock Ownership Guidelines
In February 2018, the Board adopted stock ownership guidelines that are applicable to all of our executive officers
effective as of January 1, 2018. These stock ownership guidelines reflect the Board's belief in the importance
of aligning the economic interests of stockholders and management. Under the terms of these guidelines, the
executive officers are expected to acquire and hold shares of our common stock equal in market value to the
multiple of each of their base salaries set forth below (calculated as of December 31 of each year):
Position
CEO
Other Executive Officers
Ownership Requirement
5x
3x
All executive officers, excluding the CEO, have five years from the date that the guidelines were adopted to
attain the minimum level of ownership. In 2017, the Board adopted guidelines applicable to the CEO that had
the same ownership requirement shown above, and the CEO had met his ownership requirement at the time
the Executive Officer Stock Ownership Guidelines were adopted.
As of December 31, 2017, all of our NEOs were in compliance with the applicable ownership guidelines or
otherwise expected to achieve the requisite ownership levels within the designated five-year time-frame.
Limits on Deductibility of Compensation
Prior to the adoption of the Tax Cuts and Jobs Act, Section 162(m) of the IRC limited our deductibility of
compensation paid to our CEO and each of the next 3 most highly compensated executive officers (excluding
the Chief Financial Officer) in excess of $1,000,000, but excluded “performance-based compensation” from this
limit. However, under the Tax Cuts and Jobs Act, effective for taxable years beginning after December 31, 2017,
the exemption for “performance-based compensation” has been repealed, such that compensation paid to our
covered executive officers (including our Chief Financial Officer) will no longer be deductible to the extent it
exceeds $1,000,000, unless it qualifies for transition relief applicable to certain arrangements in place as of
November 2, 2017. The 2017 stock options were designed to qualify as “performance-based compensation” for
purposes of IRC Section 162(m), but because of the uncertainties relating to the transition relief, no assurances
can be given as to whether such awards will qualify as “performance-based compensation” exempt from the
$1,000,000 deductibility limit.
63
Risk Considerations in Our Compensation Programs
The Compensation Committee believes that the mix and design of the elements of executive and non-executive
compensation do not encourage management to assume excessive risk taking, and following assessment of our
compensation program we do not believe that our compensation program creates risks that are reasonably likely to
have a material adverse effect on the Company for the following reasons:
• We structure our pay to consist of both fixed and variable compensation for our employees. The fixed (or
salary) portion of compensation is designed to provide a steady income regardless of our financial performance
or the performance of our stock price so that executives do not feel pressured to focus exclusively on our
financial performance or our stock price performance to the detriment of other important business metrics.
The variable (cash short-term incentive and equity-based long-term incentive) portions of compensation are
designed to reward both short- and long-term financial performance.
•
•
For short-term performance, our annual Bonus Plans are intended to provide annual cash payments that are
awarded based on achievement of earnings goals that are based on the operational and financial metrics
applicable to each executive officer and are established by the Compensation Committee. In addition, the
2017 maximum bonus award opportunity for NEOs was subject to a cap of 150% of their target awards.
For long-term performance, our 2017 equity grants were comprised of stock options and RSUs that vest over
a three-year period. We believe these equity grants provide incentive for executives and other employees who
receive these grants to focus on long-term fundamentals and create long-term stockholder value. In addition,
as discussed under "2018 Compensation Changes," in 2018 we granted performance-based RSUs that are
eligible to vest on January 1, 2021, subject to the Company achieving a certain level of non-GAAP earnings
per share during 2020. We believe these grants added an additional performance-based component that
requires the long-term growth of our Company over a three-year period in order to vest and provides an upside
reward for significant long-term growth in EPS.
• We have a Clawback Policy that allows us to recoup certain compensation and awards paid to our Named
Executive Officers in certain circumstances in the event that there is a material restatement of our financial
results.
• Our Insider Trading Policy does not permit margining, pledging, hedging, short sales of or trading options
related to our stock by any director, officer or employee.
• We have stock ownership guidelines that require stock ownership that is 5X the annual base salary for our
CEO, 3X the annual base salaries for our other executive officers and 4X the annual retainer for our directors.
COMPENSATION COMMITTEE REPORT
The following Report of the Compensation Committee shall not be deemed to be “soliciting material” or to be “filed”
with the SEC, and the information in this report shall not be incorporated by reference into any future filing under the
Securities Act, or the Exchange Act, except to the extent that the Company specifically incorporates it by reference
into such filing.
The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis with
management. Based on this review and discussion, the Compensation Committee recommended to the Board of
Directors that the Compensation Discussion and Analysis be included in this Proxy Statement.
Members of the Compensation Committee
H. McIntyre Gardner
Georganne C. Proctor
Mary Zappone
64
COMPENSATION OF NAMED EXECUTIVE OFFICERS
Summary Compensation Table
The following table and footnotes discuss the compensation of our NEOs for 2017 and prior years, where applicable.
In addition to the footnotes to this table, please see “Compensation Discussion and Analysis” for a detailed description
and narrative discussion of the 2017 compensation with respect to each NEO.
Name and principal
position
John S. Clendening
President and CEO
John D. Palmer
Principal Financial and
Accounting Officer
Eric M. Emans
Former CFO
Robert D. Oros
Chief Executive Officer of
HD Vest
Year
Salary (1)
Bonus (2)
Stock
awards
(3)(4)
Option
awards
(3)(4)
Non-equity
incentive plan
compensation
(5)
All other
compensation
(6)
Total
2017
2016
2017
$
$
$
549,039
$ 1,132,490
$ 2,615,802
$
1,122,000
375,000
$
381,695
$ 2,490,000
$ 1,404,101
$
$
22,635
152,659
$
$
5,441,966
4,803,455
186,154
$
44,997
$
100,244
58,104
$
8,995
$
398,494
2017
$
315,261
2016 (3) $
358,800
2015
2017
$
$
350,000
308,654
$
$
$
724,166
$ 1,419,739
247,494
$
604,915
449,998
$ 1,001,538
$
$
$
$
188,095
221,954
131,670
361,147
$
$
$
$
732,588
13,000
13,009
123,273
$
$
$
$
1,235,944
2,737,659
1,347,088
2,244,610
Sanjay Baskaran
2017
$
316,346
$
193,326
$
749,987
$
741,528
$
323,409
$
2,324,596
President of TaxAct
Ann J. Bruder
2017
$
181,731
$
349,999
$
350,962
$
115,025
$
362,692
$
1,360,409
Chief Legal Officer and
Secretary
(1) Each NEO, except Mr. Clendening, received a prorated base salary in 2017. The New NEOs joined the Company during
2017, and Mr. Emans ceased serving as our CFO on November 1, 2017.
(2) Mr. Baskaran's bonus consists of a pro-rated target bonus amount, which was guaranteed to be paid to Mr. Baskaran under
the Executive Bonus Plan. The combined Performance Target Achievement of all of Mr. Baskaran's applicable performance
metrics under the Executive Bonus Plan did not meet the target level of achievement for a target bonus payout; however,
per the terms of the Executive Bonus Plan and because he was a New NEO who joined the Company in 2017, Mr. Baskaran
was guaranteed a minimum payment of his pro-rated target bonus for 2017. See "Annual Short-Term Incentive/Bonus
Payments" for additional information.
(3) The dollar amount for stock (which consists of RSUs) and option awards is the aggregate grant date fair value computed
in accordance with ASC 718, excluding the effect of any estimated forfeitures. These amounts reflect the Company’s
accounting expense and do not correspond to the actual value that will be realized by the NEO. Assumptions used in the
valuation of stock and option awards granted in 2017 are discussed in “Note 12: Stock-Based Compensation” of the Notes
to Consolidated Financial Statements (Part II, Item 8) in our Annual Report on Form 10-K for the year ended
December 31, 2017.
(4) The Stock Awards and Option Awards column for the year ended December 31, 2016 for Mr. Emans has been updated
from the information presented in the Company's 2017 proxy statement to include the incremental fair value associated
with the modification of Mr. Emans' awards on January 22, 2016 and October 25, 2016 when his then-current employment
agreement was amended. The value shown includes both the aggregate grant date fair value for the awards granted in
2016 and the incremental fair value associated with the modified awards. The incremental fair value shown in the Stock
Award column is $179,176 and the incremental fair value shown in the Option Awards column is $433,215.
(5)
Includes amounts earned under the Bonus Plans for 2017 and paid in 2018. While Mr. Oros and Ms. Bruder were guaranteed
a minimum payment of their pro-rata target bonus pursuant to each of their employment agreements, the actual amounts
earned under the Executive Bonus Plan exceeded the target, and the amounts included reflect the achievement of the
applicable performance metrics under the Executive Bonus Plan.
65
(6) All other compensation in 2017 consists of the following:
Name
401(k)
Match
(a)
HSA (a)
Life
Insurance
Premiums
(a)
Fitness
Subsidy
(a)
Mobile
Subsidy
(a)
Signing
Bonus (b)
Relocation
(c)
Severance
(d)
Consulting
Fees (e)
Total
John S. Clendening
$ 10,800
John D. Palmer
$
7,455
Eric M. Emans
$ 10,800
Robert D. Oros
$ 10,800
$ 1,100
$
$
$
$
$
$
$
288
240
240
160
360
300
300
$
$
$
1,800
1,000
1,650
$
9,387
$
111,213
Sanjay Baskaran
$ 10,799
$ 1,166
$
170
$
330
$
1,575
$ 210,000
$
99,369
$
$
22,635
8,995
$
618,568 $
101,000 $ 732,588
$ 123,273
$ 323,409
Ann J. Bruder
$ 10,800
$ 362,692
(a) Reflects perquisites and personal benefits that are primarily non-discriminatory fringe benefits generally available to
employees, such as the 401(k) employer’s match, Health Savings Account Employer contribution ("HSA"), mobile
communications reimbursement, health club subsidy, and life insurance premiums.
$ 200,000
150,837
900
155
$
$
$
(b) Pursuant to their employment agreements, each of Mr. Baskaran and Ms. Bruder received the signing bonus shown above
when they joined the Company.
(c) Pursuant to their employment agreements, each of Messrs. Clendening, Oros and Baskaran and Ms. Bruder received
reimbursement of their relocation expenses during 2017 in the amounts shown above, which included $1,033 and $41,308
paid to Mr. Baskaran and Ms. Bruder, respectively to cover the cost of tax withholding related to such payments.
(d) Mr. Emans decided not to relocate when the Company moved its headquarters from Bellevue, Washington to Irving, Texas
during 2017, and his termination triggered the following payments pursuant to his employment agreement that was entered
January 6, 2015 and amended on October 25, 2016: (i) a severance payment in the aggregate amount of $618,568, which
is comprised of one times his base salary and his annual target bonus ($588,432); (ii) a lump sum equal to 12 months of
COBRA insurance premiums ($30,136); and (iii) the immediate vesting of all equity awards granted prior to October 25,
2016 and an extended exercise period with respect to his stock options to the earlier of the option expiration date or June 30,
2019. The value of the accelerated equity awards is reflected in the "2017 Option Exercises and Stock Vested" table.
(e) Reflects payments made to Mr. Emans during 2017 pursuant to the Emans Consulting Agreement. See "Executive
Employment Agreements; Severance Payments—Mr. Emans" for additional information regarding the Emans Consulting
Agreement.
66
2017 Grants of Plan-Based Awards
The following table and footnotes provide information about awards granted to our NEO's in 2017, including non-
equity incentive plan awards and equity plan awards that were granted under our 2015 Plan. In addition to the
footnotes to this table, please see “Compensation Discussion and Analysis—2017 Compensation Decisions” for a
detailed description and narrative discussion of these grants.
Name
John S. Clendening
John D. Palmer
Eric M. Emans (3)
Robert D. Oros
Sanjay Baskaran
Ann J. Bruder
Grant
date
1/3/2017
1/3/2017
2/20/2017
2/20/2017
2/28/2017
2/28/2017
1/30/2017
1/30/2017
6/19/2017
6/19/2017
Compensation
/Option
Committee
Approval Date
(if different
from Grant
Date)
Estimated possible payouts under non-
equity incentive plan awards
(1)
Threshold
Target
Maximum
$
550,000
$ 1,100,000
$ 1,650,000
All other
stock
awards:
number of
shares of
stock or
units
All other
option
awards:
number of
securities
underlying
options
Exercise
or base
price per
share of
option
awards
12/8/16
12/8/16
2/20/17
2/20/17
12/8/16
12/8/16
1/2/17
1/2/17
5/31/17
5/31/17
$
28,482
$
56,965
$
85,447
$
92,204
$
$
184,407
315,413
$
$
276,611
473,119
$
193,326
$
289,989
$
112,770
$
169,155
76,779
2,830
28,846
49,833
16,129
555,372
$
14.75
19,811
$
15.90
201,923
$
15.60
154,485
$
15.05
51,612
$
21.70
Grant
date fair
value of
stock and
option
awards
(2)
—
1,132,490
2,615,802
44,997
100,244
449,998
1,001,538
749,987
741,528
349,999
350,962
$
$
$
$
$
$
$
$
$
$
$
(1) Represents the range of possible cash payouts under the 2017 Bonus Plans, with the target amount reflecting a pro-rated
target cash bonus for each NEO, excluding Mr. Clendening. Actual amounts earned, as determined by the Compensation
Committee in the first quarter of 2018, are reflected in the 2017 Summary Compensation Table under Bonus for Mr. Baskaran
and Non-Equity Incentive Plan Compensation for all other NEOs. Because Messrs. Oros, Baskaran and Ms. Bruder were
guaranteed payment of their 2017 prorated annual target bonus, the minimum payment they could have received for 2017
is the target amount shown. See “Compensation Decisions Made in 2017—2017 Annual Bonus" for additional information.
(2) The dollar amount for stock (which consists of RSUs) and option awards is the aggregate grant date fair value computed in
accordance with ASC 718, excluding the effect of any estimated forfeitures. These amounts reflect the Company’s accounting
expense and do not correspond to the actual value that will be realized by the NEO. Assumptions used in the valuation of
stock and option awards granted in 2017 are discussed in “Note 12: Stock-Based Compensation” of the Notes to Consolidated
Financial Statements (Part II, Item 8) in our Annual Report on Form 10-K for the year ended December 31, 2017. See
“Compensation Decisions Made in 2017—Annual Long-Term Equity Grants" for additional information.
(3) Mr. Emans did not receive an annual equity grant for 2017 because, in connection with the relocation of the Company's
headquarters, he had previously announced that he would not be relocating with the Company at the time the 2017 annual
equity grants were made.
67
Outstanding Equity Awards at Fiscal Year End
The following table and footnotes provide information regarding unexercised options (including vested and unvested
options) and unvested RSUs outstanding as of December 31, 2017 for each of the NEOs:
Options Awards (1)
Stock Awards (1)
Number of securities underlying
unexercised options
Grant date
Exercisable
Not
exercisable
Option
exercise price/
share
Option
expiration
date
Number of
shares or
units of stock
that have not
vested
Market value
of shares or
units of
stock that
have not
vested
(2)
4/4/2016 (3)
358,333
425,000
4/4/2016
1/3/2017
1/3/2017
2/20/2017
2/20/2017
1/2/2014
2/28/2017
2/28/2017
1/30/2017
1/30/2017
6/19/2017
6/19/2017
—
—
—
—
73,727
—
—
—
—
—
—
$
$
—
555,372
— $
19,811
$
—
— $
201,923
$
—
154,485
$
—
51,612
$
—
4.98
—
14.75
—
15.90
28.73
15.60
—
15.05
—
21.70
—
4/4/2023
—
—
—
212,500
$
4,696,250
1/3/2024
— $
—
—
76,779
$
1,696,816
2/20/2024
6/30/2019
2/28/2024
—
2,830
—
—
—
62,543
—
—
—
28,846
$
637,497
1/30/2024
—
—
—
49,833
1,101,309
6/19/2024
—
—
16,129
—
356,451
Name
John S. Clendening
John D. Palmer
Eric M. Emans
Robert D. Oros
Sanjay Baskaran
Ann J. Bruder
(1) Unvested stock (which consists of RSUs) and option awards vest over a three-year period, with 33.33% vesting on the
first anniversary of the date of grant and approximately 16.67% vesting at the end of each six-month period thereafter,
except as described below.
(2) The market value of unvested RSUs is based on the closing price of our common stock on December 29, 2017, which
was the last trading day of 2017, of $22.10 per share.
(3) 15% of Mr. Clendening's option award vested on April 4, 2016, 33.33% vested on April 4, 2017 and 16.67% vested on
October 4, 2017. Approximately 16.67% will vest at the end of each six-month period following October 4, 2017, such that
the option will be fully vested on April 4, 2019.
68
2017 Option Exercises and Stock Vested
The following table and footnotes describe, for each of our NEOs, the number of shares acquired upon exercise of
stock options and vesting of RSUs during 2017, and the value realized upon such exercise and vesting. The value
realized upon exercise of stock options and vesting of RSUs is before the withholding of any taxes.
Option Awards
Stock Awards
Name
Number of
shares acquired
on exercise
Value realized on
exercise (1)
Number of
shares acquired
on vesting
Value
realized on
vesting (2)
John S. Clendening
216,667 (3)
3,341,005
212,500 $
4,271,256
John D. Palmer
Eric M. Emans (4)
Robert D. Oros
Sanjay Baskaran
Ann J. Bruder
—
—
—
—
760,271 (5) $
7,503,244
63,133 $
1,291,641
—
—
—
—
—
—
—
—
—
—
(1) The value realized on exercise was calculated by multiplying the number of shares acquired upon exercise of stock
options by the difference between the market price of the Company’s common stock per share upon exercise and the
exercise price per share.
(2) The value realized on vesting was calculated by multiplying the number of shares acquired upon the vesting of RSUs by
the closing price of the Company’s common stock per share on the vesting date.
(3) Options were exercised through a net exercise with the Company.
(4)
Includes 171,048 options and 20,762 RSUs that vested on November 1, 2017 when Mr. Emans terminated his employment
with us. Based on our closing stock price on November 1, 2017 (the day of acceleration) of $21.05, the value of the equity
that vested on that date was $2,272,890.
(5) A portion of the options were exercised through a net exercise with the Company, and a portion were exercised through a
cashless exercise.
Pension Benefits; Non-Qualified Defined Contribution;
and Other Non-Qualified Deferred Compensation Plans
We do not provide any pension benefits, non-qualified defined contribution or other deferred compensation plans for
our NEOs.
69
Potential Payments upon Termination or Change in Control
Potential Payments
The following table sets forth the estimated incremental payments of severance and/or benefits that would be provided
to each of the NEOs, excluding Mr. Emans (who was no longer employed by us on the date of the table shown below),
or his or her estate in the event of such executive officer’s termination of employment in connection with a change of
control or significant corporate transaction, termination by the Company without cause, or by the employee for good
reason, death, or disability. Additional information regarding the severance and other benefits to which our NEOs are
entitled under each of their employment agreements, if applicable, is set forth under "Compensation Discussion and
Analysis—Employment Agreements."
The table below reflects the following assumptions:
•
•
•
•
•
•
the termination date was December 31, 2017;
each of the executive officer's employment agreements or the Company's severance plan in the case of
Mr. Palmer would be followed in the case of a termination or termination following a change-in-control;
the closing price for our stock on December 29, 2017, which was the last trading day of 2017, was $22.10 (as
reported on the NASDAQ);
each NEO set forth below had received all of his or her base salary earned during 2017;
each NEO set forth below was entitled to, but had not yet been paid, the 2017 annual bonus plan payment
that they received in February 2017 (because the assumed termination date is December 31, 2017); and
any change of control payment would only be made if there was a “double-trigger,” which means that two
events must occur for payments to be made (i.e., a change of control and the actual or constructive termination
of employment, in this case within a specified period before or after such trigger event, as further described
below).
70
Termination
by the
Company
Without
Cause or by
the Executive
for Good
Reason/
Constructive
Termination
(1)
Change of
Control or
Corporate
Transaction
Termination
Without
Cause/Good
Reason
Termination
By Executive
(Without
Cause)
Disability (2)
Death (3)
$ 2,475,000
$ 3,300,000
$
275,000
$
275,000
Executive
John S. Clendening
Severance (4)
Short-Term Incentive (5)
$ 1,122,000
$ 1,122,000
$ 1,122,000
Health Benefits (6)
Accelerated Vesting of Stock Options (7)
Accelerated Vesting of Stock Awards (7)
$
$
$
33,076
$
33,076
— $ 11,357,984
— $ 6,393,066
$ 1,122,000
$ 3,630,076
$ 22,206,126
$
275,000
$
275,000
Total
John D. Palmer
Severance
Short-Term Incentive
Health Benefits
Accelerated Vesting of Stock Options (7)
Accelerated Vesting of Stock Awards (7)
Total
Robert D. Oros
Severance (4)
$
110,000
$
— $
110,000
Short-Term Incentive (5)
$
361,147
Health Benefits (6)
Accelerated Vesting of Stock Options (7)
Accelerated Vesting of Stock Awards (7)
Total
Sanjay Baskaran
Severance (4)
$
361,147
Short-Term Incentive (5)
$
193,326
Health Benefits (6)
Accelerated Vesting of Stock Options (7)
Accelerated Vesting of Stock Awards (7)
Total
Ann J. Bruder
Severance (4)
$
193,326
Short-Term Incentive (5)
$
115,025
Health Benefits (6)
Accelerated Vesting of Stock Options (7)
Accelerated Vesting of Stock Awards (7)
Total
$
115,025
$
$
$
$
$
$
122,828
62,543
185,371
$
— $
—
750,000
$
187,500
$
93,750
361,147
21,593
375,000
361,147
21,593
— $ 1,312,500
— $
637,497
757,740
$ 3,082,737
$
187,500
$
93,750
350,000
193,326
15,395
$
$
$
560,000
$
175,000
$
87,500
193,326
15,395
— $ 1,089,119
— $ 1,101,309
558,721
$ 2,959,149
$
175,000
350,000
115,025
15,417
$
$
$
— $
— $
560,000
$
175,000
115,025
15,417
20,645
356,451
$
$
87,500
87,500
480,442
$ 1,067,538
$
175,000
$
87,500
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
(1) Because Mr. Palmer does not have an employment agreement, his termination payment information shown in this column
would be as a result of a reduction in force or job elimination under our Severance Plan.
(2) Pursuant to the terms of each of their employment agreements, each of the NEOs, excluding Mr. Palmer, would be entitled
to receive six months of base pay. Mr. Palmer does not have an employment agreement.
71
(3) Pursuant to the terms of each of their employment agreements, Mr. Clendening would be entitled to receive six months of
base pay and the other NEOs, excluding Mr. Palmer, would be entitled to receive three months of base pay.
(4) Amounts reported represent the severance amount payable to each NEO described in detail below.
(5) Reflects the actual bonus earned for 2017 under the Bonus Plans. As of December 31, 2017, this amount had been earned
but not yet paid.
(6) Amounts reported are based on the estimated COBRA costs for 18 months for Mr. Clendening and 12 months for Messrs. Oros
and Baskaran and Ms. Bruder.
(7) Each of the NEOs, excluding Mr. Palmer, would receive accelerated vesting of their outstanding equity awards pursuant to
the terms of their employment agreements, which are described below. Mr. Palmer's accelerated vesting would be in
accordance with our 2015 Plan.
Mr. Emans: Mr. Emans is not included in the table above because his employment terminated with us on November 1,
2017 (and the information above is as of December 31, 2017). Mr. Emans decided not to relocate when the Company
moved its headquarters from Bellevue, Washington to Irving, Texas during 2017, and his termination triggered the
following pursuant to his employment agreement that was entered January 6, 2015 and amended on October 25,
2016:
•
a severance payment in the aggregate amount of $618,568, which is comprised of:
◦
◦
one times his base salary and one times his annual target bonus ($588,432);
a lump sum equal to 12 months of COBRA insurance premiums ($30,136); and
•
the immediate vesting of all equity awards granted prior to October 25, 2016 and an extended exercise period
with respect to his stock options to the earlier of the option expiration date or June 30, 2019. See "2017 Option
Exercises and Stock Vested" for additional information regarding the equity that was accelerated.
Mr. Emans also received a pro-rated bonus payment under our 2017 Executive Bonus Plan in the amount of $188,095,
which was paid in 2018 following the determination of the achievement of the applicable performance metrics for 2017.
Employment Agreements
The Company has entered into employment agreements with each of its NEOs (except Mr. Palmer) that include specific
terms regarding severance payments and other benefits, if any, due to the executive under various employment
termination circumstances. The following sections describe and explain the specific circumstances that would trigger
the amounts set forth in the table above.
Termination without Cause and Constructive Termination or Resignation for Good Reason: Under the
employment agreements in place on December 31, 2017, all of the New Executive Officers receive similar benefits if
they are terminated by us without cause or there is a constructive termination, including the following:
•
The New Executive Officers are entitled to:
◦
◦
severance benefits of a one-time lump sum payment equal to one times his or her then-current annual
salary; and
a lump sum payment equal to 12 months of COBRA insurance benefits.
• Mr. Clendening would receive:
◦
◦
severance benefits of a one-time lump sum payment equal to 1.5 times his then-current salary and
1.5 times his target bonus amount; and
a lump sum payment equal to 18 months of COBRA insurance benefits.
In general, “cause” is defined as misconduct that is criminal, dishonest, fraudulent, or in violation of the Company’s
Code of Ethics and Conduct or other written policy, failure to perform job duties, breach of confidentiality, or an obstruction
of any internal or governmental investigation. “Constructive termination” and "good reason" generally mean a material
reduction in duties, authority, responsibility, base salary or a requirement to relocate more than 25 miles from Irving,
72
Texas. Under Mr. Clendening's Employment Agreement, "constructive termination" and "good reason" means, in
addition to the foregoing, a material reduction in a reporting relationship or a material reduction in bonus.
Change of Control: A fundamental feature of the change of control provisions in the NEO employment agreements
is that the benefits generally have a “double-trigger,” which means that two events must occur for payments to be
made (i.e., a change of control and the actual or constructive termination of employment, in this case within a specified
period before or after such trigger event). The change of control provisions do not contain a Section 280G tax gross-
up. The Compensation Committee believes that the foregoing change of control provisions are in the best interest of
the Company and its stockholders to ensure the continued dedication of such employees, notwithstanding the possibility,
threat or occurrence of a change of control. In addition, it is imperative to diminish the inevitable distraction of such
employees by virtue of the personal uncertainties and risks created by a pending or threatened change of control, and
to provide such employees with compensation and benefit arrangements upon a change of control that are competitive
with those of other companies.
Under the employment agreements in place as of December 31, 2017, all of the executive officers, receive similar
benefits if they are terminated within 12 months following or during the two-month period prior to a change of control
of the Company, including the following:
•
The New Executive Officers would each receive:
◦
◦
severance benefits of a one-time lump sum payment equal to one times each of their base salary and
one times each of their one times each of their target bonus amount; and
12 months of COBRA premiums.
• Mr. Clendening would receive:
◦
◦
severance benefits of a one-time lump sum payment equal to two times his base salary and two times
his target bonus amount; and
18 months of COBRA premiums.
•
Each NEO, excluding Mr. Palmer, would also receive full acceleration of all unvested time-based equity awards
(and performance-based equity awards for Mr. Clendening) and an extended post-termination exercise period
for the executive's options of 24 months for Mr. Clendening and 12 months for the other NEOs.
"Change of control" is defined in the employment agreements as any of the following: (i) acquisition of more than 50%
of the voting power of the Company’s outstanding securities by any person or through a merger, reorganization or
consolidation of the Company, (ii) approval by the stockholders of liquidation of the Company, (iii) a sale of the Company
or substantially all of its assets, or (iv) a change in composition of the Board of Directors such that the majority is no
longer comprised of incumbent directors (an incumbent being a continuing director, a director nominated by a majority
of directors then in office, or a director appointed by directors so nominated).
Severance Plan: If Mr. Palmer is terminated as a result of a reduction in force or an elimination of his position, he
would be entitled, as long as he signs a release, to severance benefits under our Severance Plan, which is available
to all employees generally (excluding employees, such as our NEOs, who have employment agreements with us). In
the case of such severance, Mr. Palmer would be entitled to a minimum lump sum payment equal to 26 weeks of his
base salary.
Death: Under the employment agreements in place as of December 31, 2017 for the New Executive Officers, death
entitles the New Executive Officers' beneficiary to receive a lump sum payment equal to three months’ base salary.
Under Mr. Clendening's employment agreement, his beneficiary would receive a lump sum payment equal to six
months' base salary.
Disability: Under the employment agreements in place as of December 31, 2017, for all NEOs other than Mr. Palmer,
termination due to disability (defined as an inability to perform his or her duties for 180 days in any one-year period)
entitles the NEO to receive a lump sum payment equal to six months' base salary.
Equity Plan: Because Mr. Palmer does not have an employment agreement that would determine the treatment of
his equity upon a change of control, his outstanding equity awards would receive the treatment described below under
a change of control or company transaction. In addition, any performance-based equity granted under the 2015
incentive plan (which includes performance-based RSUs granted to the Company's executive officers at the beginning
of 2018) held by each of the New NEOs, excluding Mr. Clendening, would be governed by the terms of the 2015 Plan
73
set forth below under a change of control. (Excluding Mr. Clendening, the employment agreements for the New
Executive Officers did not address treatment of performance-based equity.)
Under the 2015 Plan, unless the Compensation Committee determines otherwise in the instrument evidencing an
award or in a written employment, services or other agreement between a participant and the Company or a related
company, in the event of a change of control:
•
•
If the change of control is a company transaction in which awards, other than performance shares and
performance units, could be converted, assumed, substituted for or replaced by the successor company, then,
to the extent that the successor company converts, assumes, substitutes for, or replaces such awards, the
vesting restrictions and forfeiture provisions applicable to such awards will not be accelerated or lapse, and all
such vesting restrictions and forfeiture provisions will continue with respect to any shares of the successor
company or other consideration that may be received with respect to such awards. To the extent such outstanding
awards are not converted, assumed, substituted for, or replaced by the successor company, such awards will
become fully vested and exercisable or payable, and all applicable restrictions or forfeiture provisions will lapse,
immediately prior to the change of control. Such awards will then terminate at the effective time of the change
of control.
If the change of control is not a company transaction in which awards, other than performance shares and
performance units, could be converted, assumed, substituted for, or replaced by the successor company, all
outstanding awards, other than performance shares and performance units, will become fully vested and
exercisable or payable, and all applicable restrictions or forfeiture provisions will lapse, immediately prior to the
change of control. Such awards will then terminate at the effective time of the change of control.
All performance shares and performance units earned and outstanding as of the date the change of control occurs
and for which the payout level has been determined will be payable in full in accordance with the payout schedule
included in the instrument evidencing the award. Any remaining outstanding performance shares or performance units
for which the payout level has not been determined will be prorated at the target payout level up to and including the
date of the change of control and will be payable in accordance with the payout schedule included in the instrument
evidencing the award.
The Compensation Committee may in its discretion instead provide that a participant’s outstanding awards will terminate
in exchange for a cash payment.
Definitions of change of Control and Company Transaction under the 2015 Plan. Unless the Compensation Committee
determines otherwise with respect to an award at the time it is granted or unless otherwise defined for purposes of an
award in a written employment, services or other agreement between a participant and the Company or a related
company, a change of control of the Company generally means the occurrence of any of the following events:
•
•
•
an acquisition by any individual, entity or group of beneficial ownership of 40% or more of either (a) the then
outstanding shares of common stock or (b) the combined voting power of the then outstanding voting securities
of the Company entitled to vote generally in the election of directors (generally excluding any acquisition directly
from the Company, any acquisition by the Company, any acquisition by any employee benefit plan of the
Company or a related company, or an acquisition pursuant to certain related party transactions);
a change in the composition of the Board during any two-year period such that the incumbent Board members
cease to constitute at least a majority of the Board (not including directors whose election, or nomination for
election by stockholders, was approved by a majority of the incumbent Board); or
consummation of a company transaction, which is generally defined as a merger or consolidation, a sale of
all of the Company’s outstanding voting securities, or a sale, lease or other transfer of all or substantially all
of the assets of the Company, unless (a) after such transaction the beneficial owners of common stock and
voting securities immediately prior to the transaction retain at least 50% of such common stock and voting
securities of the company resulting from such transaction, (b) no person beneficially owns 40% or more of the
then outstanding common stock or voting securities of the company resulting from such transaction, and (c) at
least a majority of the board of directors of the company resulting from such transaction were incumbent
directors of the Company prior to such transaction.
74
Pay Ratio
2017 EXECUTIVE PAY RATIO
In compliance with Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 402
(u) of Regulation S-K, we are providing the following information about the relationship of the annual total compensation
of our employees and the annual total compensation of John Clendening, our President and CEO. For 2017, our last
completed fiscal year: (i) the median of the annual total compensation of all employees of the company (other than
the CEO) was $77,057; and (ii) the annual total compensation of our CEO, as reported in the “Summary Compensation
Table,” was $5,441,966. Based on this information, for 2017, the ratio of the annual total compensation of our CEO
to the median of the annual total compensation of all employees was 72 to 1.
Methodology
To identify the median of the annual total compensation of all our employees, as well as to determine the annual total
compensation of the “median employee,” the methodology and the material assumptions, adjustments and estimates
that we used are described below.
We selected the first business day of October 2017, which was October 2, 2017, as the date upon which we would
identify the “median employee.” This date was chosen to allow sufficient time to identify the median employee. We
included all employees working on a full-time, part-time or interim basis. Our non-U.S. employees account for less
than 5% of our employees and were excluded. In order to identify the “median employee," we utilized total cash
compensation and equity compensation of our employees. The cash compensation was annualized for employees
who were hired during 2017 and was comprised of base salary and (i) actual bonuses paid to employees hired before
2017 and (ii) the greater of target bonus or actual bonus paid for employees who were hired in 2017 (because the
actual bonus paid was prorated and would not be representative of full year bonus amounts). We did not make any cost-
of-living adjustments. We identified our “median employee” using a standard median formula based on the
compensation measure, which was consistently applied to all of our employees included in this calculation. Once we
identified our "median employee," total compensation was calculated for this individual using the same methodology
we use for our NEOs as set forth in the 2017 Summary Compensation Table.
75
Section 16(a) Beneficial Ownership Reporting Compliance
BENEFICIAL OWNERSHIP
Section 16(a) of the Exchange Act requires our executive officers, directors, and persons who own more than ten
percent of a registered class of our equity securities to file reports of ownership on Form 3 and changes in ownership
on Form 4 and Form 5 with the SEC. Executive officers, directors, and greater-than-ten-percent stockholders are
required by SEC regulations to furnish us with copies of all Section 16(a) forms they file. Based solely on our review
of the copies of such forms received by the Company or filed with the SEC, and written representations from certain
reporting persons, we believe that all Section 16(a) filing requirements applicable to our executive officers, directors,
and persons who own more than ten percent of a registered class of our equity securities have been complied with
on a timely basis during 2017.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding the beneficial ownership of our common stock as of April 9,
2018, as to: (i) each person who is known by us to own beneficially more than five percent of the outstanding shares
of common stock; (ii) each of our directors and Director Nominees; (iii) each of our NEOs; and (iv) all current directors
and executive officers as a group. Information for beneficial owners who are not officers or directors is based on their
most recent filings with the SEC (as described in the footnotes to this table) and has not been independently verified
by us. The number of shares outstanding as of April 9, 2018 was 46,912,609 shares.
Unless otherwise indicated below, and subject to applicable community property laws, we believe based on the
information provided to us, that each beneficial owner has sole voting and investment power with respect to the shares
listed below. Unless otherwise indicated, the address of each beneficial owner in the table below is c/o Blucora, Inc.
6333 North State Highway 161, Irving, Texas 75038.
76
Principal Stockholders, Directors, Nominees for
Director and Named Executive Officers
5% Stockholders
BlackRock, Inc.
55 East 52nd Street
New York, NY 10055
Number of
Shares
Owned
Directly or
Indirectly
5,826,130
Dimensional Fund Advisors LP
3,526,791
Building One
6300 Bee Cave Road
Austin, TX 78746
The Vanguard Group
100 Vanguard Blvd
Malvern, PA 19355
5,544,834
Wellington Group Holdings LLP
4,788,972
c/o Wellington Management Company LLP
Number of Shares That
Can Be Acquired Within
60 Days of
April 9, 2018
Options
RSUs
Shares Beneficially Owned (1)
Percent of
Class
Number
—
—
—
—
— 5,826,130 (2)
12.42%
— 3,526,791 (3)
7.52%
— 5,544,834 (4)
11.82%
— 4,788,972 (5)
10.21%
280 Congress Street
Boston, MA 02210
First Trust Portfolios L.P.
First Trust Advisors L.P.
The Charger Corporation
120 East Liberty Dr, Suite 400
Wheaton, IL 60187
Directors
Steven Aldrich
William L. Atwell
John S. Clendening
Lance G. Dunn
H. McIntyre Gardner
Georganne Proctor
Christopher W. Walters
Mary S. Zappone
NEOs and Directors and Officers as a Group
John D. Palmer
Eric Emans
Robert D. Oros
Sanjay Baskaran
Ann J. Bruder
2,381,565
2,381,565 (6)
5.08%
—
14,061
—
5,221
8,474
7,747
8,474
27,029
*
*
327,723
510,623
—
838,346
1.77%
50,417
71,863
3,575
—
30,541
27,111
—
81,825
7,274
12,368
4,596
—
42,388
38,940
6,604
73,727
67,307
51,495
—
6,053
6,053
8,474
6,053
6,053
—
—
—
—
—
128,333
14,224
8,474
78,982
72,104
6,604
155,552
74,581
63,863
—
*
*
*
*
*
*
*
*
*
*
All directors and executive officers as a group
(13 persons)
479,814
859,578
53,549
1,392,941
2.91%
* Indicates less than 1.0% ownership of Blucora common stock.
(1) Beneficial ownership is determined in accordance with the rules of the SEC. In computing the number of shares beneficially
owned by a person and the percentage ownership of that person, shares of common stock subject to options held by that
person that are currently exercisable or will become exercisable within 60 days of April 9, 2018, if any, or RSUs held by that
person that vest within 60 days of April 9, 2018, if any, are deemed outstanding, while such shares are not deemed outstanding
for purposes of computing the percentage ownership of any other person.
(2) Based on information contained in a Schedule 13G/A filed with the SEC on January 19, 2018, by BlackRock, Inc. BlackRock,
Inc. reported it had sole voting power as to 5,745,195 shares and sole dispositive power as to 5,826,130 shares.
77
(3) Based on information contained in a Schedule 13G/A filed with the SEC on February 9, 2018, by Dimensional Fund Advisors
LP and its subsidiaries (“Dimensional”). Dimensional is an investment adviser/manager to certain funds and as investment
adviser/manager, Dimensional possesses investment and/or voting power of the securities of the funds and may be deemed
to be the beneficial owner of the shares held by the funds. Dimensional disclaims beneficial ownership of the shares held by
the funds. Dimensional reported it had sole voting power as to 3,383,525 shares and sole dispositive power as to 3,526,791
shares.
(4) Based on information contained in a Schedule 13G/A filed with the SEC on February 8, 2018, by The Vanguard Group.
(“Vanguard”). Vanguard reported it had sole voting power as to 58,912 shares, shared voting power as to 9,996 shares, sole
dispositive power as to 5,480,840 shares, and shared dispositive power as to 63,994 shares.
(5) Based on information contained in Schedule 13G/A filed with the SEC on March 9, 2018, each of Wellington Management
Group LLP, Wellington Group Holdings LLP and Wellington Investment Advisors Holdings LLP shares voting power as to
4,400,270 shares and has shared dispositive power as to 4,788,972 shares; and Wellington Management Company LLP
shares voting power as to 3,987,447 shares and has shared dispositive power as to 4,254,234 shares.
(6) Based on information contained in Schedule 13G filed with the SEC on January 29, 2018 jointly by First Trust Portfolios L.P.,
First Trust Advisors L.P. and The Charger Corporation. First Trust Portfolios L.P. acts as sponsor of certain unit investment
trusts that holds shares of the Company. First Trust Advisors L.P., an affiliate of First Trust Portfolios L.P., acts as a portfolio
supervisor of the unit investment trusts sponsored by First Trust Portfolios L.P., certain of which hold shares of the Company.
Neither First Trust Portfolios L.P., First Trust Advisors L.P. nor The Charger Corporation have the power to vote the shares
of the Company held by these investment trusts sponsored by First Trust Portfolios L.P. Each of First Trust Portfolios L.P.,
First Trust Advisors L.P, and The Charger Corporation disclaims beneficial ownership of the shares included in the Schedule
13G. First Trust Advisors L.P. and The Charger Corporation share voting power as to 2,354,491 shares and share dispositive
power as to 2,381,565 shares. First Trust Portfolios L.P. has shared dispositive power as to 27,074 shares.
Ownership Limitations
Certain transfers of our stock between stockholders could result in our undergoing an “ownership change” as defined
in Section 382 of the IRC and the related Treasury Regulations (“Section 382”). Our certificate of incorporation (the
“Charter”) was amended in 2009 to reclassify our common stock and impose restrictions on its transfer under certain
circumstances related to Section 382.
In particular, the Charter generally restricts any person or entity from attempting to transfer (which includes any direct
or indirect acquisition, sale, transfer, assignment, conveyance, pledge, or other disposition) any of our stock (or options,
warrants, or other rights to acquire our stock, or securities convertible or exchangeable into our stock) to the extent
that transfer would (i) create or result in an individual or entity becoming a five-percent stockholder of our stock for
purposes of Section 382 (a “Five Percent Stockholder”) or (ii) increase the stock ownership percentage of any existing
Five Percent Stockholder. Any person or entity attempting to acquire shares in such a transaction is referred to as a
“Restricted Holder.” The Charter does not prevent transfers that are sales by a Five Percent Stockholder, although it
does restrict any purchasers that seek to acquire shares from a Five Percent Stockholder to the extent that the purchaser
is or would become a Five Percent Stockholder.
Any transfer that violates the Charter is null and void ab initio and is not effective to transfer any record, legal, beneficial,
or any other ownership of the number of shares that result in the violation (which are referred to as “Excess Securities”).
The purported transferee shall not be entitled to any rights as our stockholder with respect to the Excess Securities.
Instead, the purported transferee would be required, upon demand by the Company, to transfer the Excess Securities
to an agent designated by the Company for the limited purpose of consummating an orderly arm’s-length sale of such
shares. The net proceeds of the sale will be distributed first to reimburse the agent for any costs associated with the
sale, second to the purported transferee to the extent of the price it paid, and finally any additional amount will go to
the purported transferor, or, if the purported transferor cannot be readily identified, to a charity designated by the Board
of Directors. The Charter also provides the Company with various remedies to prevent or respond to a purported
transfer that violates its provisions. In particular, any person who knowingly violates such provisions, together with any
persons in the same control group with such person, are jointly and severally liable to the Company for such amounts
as will put the Company in the same financial position as it would have been in had such violation not occurred.
Our Board of Directors may authorize an acquisition by a Restricted Holder of stock that would otherwise violate the
Charter if the Board of Directors determines, in its sole discretion, that after taking into account the preservation of our
net operating losses ("NOLs") and income tax credits, such acquisition would be in the best interests of the Company
and its stockholders. Any Restricted Holder that would like to acquire shares of our stock must make a written request
to our Board of Directors prior to any such acquisition. The Company intends to enforce the restrictions to preserve
78
future use of our NOLs and income tax credits for so long as the Board of Directors determines in good faith that it is
in the best interests of the Company to prevent the possibility of an ownership change under Section 382.
TRANSACTION OF OTHER BUSINESS
The Board of Directors is unaware of any other matters to be submitted at the meeting. If any other matters come
before the meeting, the persons named as proxies in the accompanying form of proxy will vote the shares represented
in their discretion.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS AND DIRECTOR NOMINATIONS
Stockholder Proposal
Any stockholder proposal intended to be included in the Company’s Proxy Statement and form of proxy for the 2019
annual meeting of stockholders (pursuant to Rule 14a-8 of the Exchange Act) must be received by the Company at
6333 North State Highway 161, 4th Floor, Irving, Texas 75038 no later than December 20, 2018 and must otherwise
be in compliance with applicable SEC rules. However, pursuant to such rule, if the 2019 annual meeting is held on a
date that is before May 8, 2019 or after July 7, 2019, then a stockholder proposal submitted for inclusion in our Proxy
Statement must be received by us a reasonable time before we begin to print and mail our proxy statement for the
2019 annual meeting.
Director Nomination by Stockholders
Any stockholder nomination of a candidate for election to our Board of Directors, and any stockholder proposal of other
business intended to be presented for consideration at the 2019 annual meeting of stockholders (but that will not be
included in the Company’s Proxy Statement for such meeting pursuant to Rule 14a-8 of the Exchange Act), must be
received in a timely manner and otherwise in accordance with the Company’s Bylaws and related policies and
procedures. In particular, our Bylaws establish that nominations for the election of directors or proposals of other
business may be made by any stockholder entitled to vote who has delivered written notice to our Corporate Secretary
not fewer than 90 days nor more than 120 days before the anniversary of the previous year’s annual meeting, which
notice must contain the information specified in the Bylaws concerning the nominees or other business proposed by
the stockholder and concerning the stockholder proposing such nominations or other business. Accordingly, any such
stockholder proposal must be received between the close of business on February 7, 2019 and the close of business
on March 9, 2019. However, if the 2019 annual meeting is not scheduled to be held between May 8, 2019 and July 7,
2019, such stockholder’s notice must be delivered to our Corporate Secretary not earlier than 120 days prior to the
date of the 2019 annual meeting and not later than the later of (A) the tenth day following the day of the public
announcement of the date of the 2019 annual meeting or (B) the date which is 90 days prior to the date of the 2019
annual meeting. Further information regarding nomination of directors is disclosed above in the descriptions of the
Nominating and Governance Committee and of the Director Nomination Process under the heading “Board of Directors
and Committee Information.”
The Company reserves the right to reject, rule out of order, or take other appropriate action with respect to any
nomination or proposal that does not comply with the requirements of our Bylaws or any applicable laws or regulations.
A copy of the full text of our Bylaws is available on our company website at www.blucora.com or may be obtained by
writing to the Corporate Secretary of Blucora. All notices of proposals by stockholders, whether or not included in our
proxy materials, should be sent to our principal executive offices at 6333 North State Highway 161, 4th Floor, Irving,
Texas 75038, Attention: Corporate Secretary.
ANNUAL REPORT TO STOCKHOLDERS
The Company’s Annual Report to Stockholders, including the Annual Report on Form 10-K for the year ended
December 31, 2017, is being furnished together with this Proxy Statement. The Annual Report to Stockholders is also
available on the corporate website at www.blucora.com. Upon written request by any stockholder to Ann J. Bruder,
our Corporate Secretary, at 6333 North State Highway 161, 4th Floor, Irving, Texas 75038, a copy of the Annual Report
to Stockholders will be furnished without charge, and a copy of any or all exhibits to the Annual Report on Form 10-K
will be furnished for a fee that will not exceed the reasonable expenses in furnishing those exhibits. The Company’s
SEC filings also are available to the public at the SEC’s website at http://www.sec.gov.
79
WHERE YOU CAN FIND MORE INFORMATION
The Company files annual, quarterly, and current reports, proxy statements, and other information with the SEC.
You may read and copy this information at the following location:
Public Reference Room
100 F Street, NE
Washington, D.C. 20549
Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. The Company’s public
filings are also available to the public from document retrieval services and the internet website maintained by the
SEC at www.sec.gov. These filings are also available on the Company’s corporate website at www.blucora.com under
“Investor Center – Financial Information – SEC Filings.”
* * * *
Your vote is important to us. Please vote by telephone or Internet, or, if you request and receive a paper copy of the
proxy materials, please sign, date and promptly mail the enclosed proxy card or use the telephone or Internet voting
procedures described on the proxy card. Shares must be voted either by telephone, online, or by completing and
returning a proxy card. Shares cannot be voted by marking, writing on and/or returning the Notice of Internet Availability.
Any Notices of Internet Availability that are returned will not be counted as votes.
By Order of the Board of Directors,
Ann J. Bruder
Chief Legal Officer and Secretary
Irving, Texas
April 19, 2018
Annex A - Non-GAAP Reconciliation
Appendix A - Blucora, Inc. 2018 Long-Term Incentive Plan
Appendix B - Certificate of Amendment to Restated Certificate of Incorporation
80
NON-GAAP RECONCILIATION
Annex A
Below is a reconciliation of the non-GAAP measures set forth in this proxy statement under "Proxy Statement Summary"
and "Compensation Discussion and Analysis—Executive Summary."
Adjusted 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, amortization of acquired intangible assets (including
acquired technology), restructuring, other loss, net, the impact of noncontrolling interests, income tax expense (benefit),
the effects of discontinued operations, acquisition-related costs and CEO separation-related costs. Restructuring costs
relate to the move of our corporate headquarters, which was announced in the fourth quarter of 2016. Acquisition-
related costs include professional services fees and other direct transaction costs and changes in the fair value of
contingent consideration liabilities related to acquired companies. The SimpleTax acquisition that was completed in
2015 included contingent consideration, for which the fair value of that liability was revalued in the second quarter of
2016. For further detail, see "Note 9: Debt" of the Notes to Consolidated Financial Statements in Part II Item 8 of our
Annual Report on Form 10-K for the year ended December 31, 2017.
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.
Non-GAAP Net Income and Net Income Per Share (Non-GAAP EPS)
We define non-GAAP net income (loss) as net income (loss) attributable to Blucora, Inc., determined in accordance
with GAAP, excluding the effects of discontinued operations, stock-based compensation, amortization of acquired
intangible assets (including acquired technology), accretion of debt discount and accelerated accretion on debt discount
on our Convertible Senior Notes that were formerly outstanding (the "Notes"), gain on the Notes repurchased, write-
off of debt discount and debt issuance costs on the Notes that were redeemed and the terminated TaxAct - HD Vest
2015 credit facility, acquisition-related costs (described further under Adjusted EBITDA above), restructuring costs
(described further under Adjusted EBITDA above), the impact of noncontrolling interests, the related cash tax impact
of those adjustments, and non-cash income taxes. The write-off of debt discount and debt issuance costs on the
terminated Notes and the closed TaxAct - HD Vest 2015 credit facility relates to the debt refinancing that occurred in
the second quarter of 2017. 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 expire, if unutilized, between 2020 and 2024.
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 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) 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). Other companies may calculate non-GAAP net income differently,
and, therefore, our non-GAAP net income may not be comparable to similarly titled measures of other companies.
81
Reconciliation of Non-GAAP Financial Measures
(in thousands except per share amounts, rounding
differences may exist)
Adjusted EBITDA
2015
FY 12/31
pro forma (1)
2016
FY 12/31
as reported
2017
FY 12/31
as reported
Net income (loss) attributable to Blucora, Inc.
Stock-based compensation
$
(38,884) $
13,591
(65,158) $
14,128
Depreciation and amortization of acquired
intangible assets
Restructuring
Other loss, net
Net income attributable to noncontrolling
interests
Income tax benefit
Discontinued operations, net of tax
Acquisition-related costs
Adjusted EBITDA
Non-GAAP Net Income (Loss)
Net income (loss) attributable to Blucora, Inc.
Discontinued operations, net of income taxes
Stock-based compensation
Amortization of acquired intangible assets
Accretion of debt discount on Convertible
Senior Notes
Accelerated accretion of debt discount on
Convertible Senior Notes repurchased
Gain on Convertible Senior Notes repurchased
Write-off of debt discount and debt issuance
costs on terminated Convertible Senior
Notes
Write-off of debt discount and debt issuance
costs on closed TaxAct - HD Vest 2015
credit facility
Acquisition-related costs
Restructuring
Impact of noncontrolling interests
Cash tax impact of adjustments to GAAP net
income
Non-cash income tax (benefit) expense
Non-GAAP net income (loss)
Non-GAAP net income (loss) per share
Diluted shares
$
$
$
$
45,464
—
41,934
—
(7,222)
27,348
—
38,688
3,870
39,781
658
(1,285)
63,121
391
82,231
$
94,194
$
(38,884) $
27,348
(65,158) $
63,121
13,591
40,851
3,866
—
—
—
—
—
—
—
(400)
(9,422)
36,950
$
0.88
$
41,861
14,128
34,143
3,666
1,628
(7,724)
—
—
391
3,870
658
175
(3,802)
45,096
1.06
42,686
$
$
27,039
11,653
38,139
3,101
44,551
2,337
(25,890)
—
—
100,930
27,039
—
11,653
34,002
1,567
—
—
6,715
9,593
—
3,101
2,337
(6)
(26,853)
69,148
1.46
47,211
(1) On October 14, 2015, we announced the acquisition of HD Vest, which closed on December 31, 2015. As part of
that announcement, we also stated our plans to divest our previously operated Search and Content and E-Commerce
businesses in order to focus more strategically on the technology-enabled financial solutions market. The pro forma
information reflects the combination of HD Vest, TaxAct and corporate expenses as if the HD Vest acquisition closed
on January 1, 2014 and excludes the results of our previously operated Search and Content and E-Commerce
businesses that were divested in 2016. The Company believes that this presentation most accurately reflects the
financial performance of the Company on a go-forward basis.
82
BLUCORA, INC.
2018 LONG-TERM INCENTIVE PLAN
Appendix A
The Blucora, Inc. 2018 Long-Term Incentive Plan, as it may be amended from time to time (the “Plan”) was
adopted by the Board of Directors of Blucora, Inc., a Delaware corporation (the “Company”), on April 6, 2018 (the
“Board Approval Date”), to be effective as of the date the Plan is approved by the Company’s stockholders (the
“Effective Date”). The Plan replaces and supersedes the Blucora, Inc. 2015 Incentive Plan as Amended and Restated
(the “2015 Plan”) in its entirety. The 2015 Plan shall terminate on the Effective Date, but shall continue to apply to
awards granted under the 2015 Plan prior to the Effective Date.
ARTICLE 1
PURPOSE
The purpose of the Plan is to attract and retain the services of key Employees, key Contractors, and Outside
Directors of the Company and its Related Companies and to provide such persons with a proprietary interest in the
Company through the granting of Incentive Stock Options, Nonqualified Stock Options, Stock Appreciation Rights,
Restricted Stock, Restricted Stock Units, Performance Awards, Dividend Equivalent Rights, and Other Awards, whether
granted singly, or in combination, or in tandem, that will:
(a)
(b)
Companies; and
increase the interest of such persons in the Company’s welfare;
furnish an incentive to such persons to continue their services for the Company or its Related
(c)
provide a means through which the Company may attract able persons as Employees,
Contractors, and Outside Directors.
With respect to Participants who are subject to the reporting requirements of Section 16 of the Exchange Act,
the Plan and all transactions under the Plan are intended to comply with all applicable conditions of Rule 16b-3
promulgated under the Exchange Act. To the extent any provision of the Plan or action by the Committee fails to so
comply, such provision or action shall be deemed null and void ab initio, to the extent permitted by law and deemed
advisable by the Committee.
ARTICLE 2
DEFINITIONS
For the purpose of the Plan, unless the context requires otherwise, the following terms shall have the meanings
indicated:
2.1
2.2
“2015 Plan” is defined in the Preamble to the Plan.
“Annual Stockholders Meeting” means the annual general meeting of the stockholders of the
Company, as established by the Board.
2.3
“Applicable Law” means all legal requirements relating to the administration of equity incentive plans
and the issuance and distribution of shares of Common Stock, if any, under applicable corporate laws, applicable
securities laws, the rules of any exchange or inter-dealer quotation system upon which the Company’s securities are
listed or quoted, the rules of any foreign jurisdiction applicable to Incentives granted to residents therein, and any other
applicable law, rule or restriction.
A-1
2.4
“Authorized Officer” is defined in Section 3.2(b) hereof.
2.5
“Award” means the grant of any Incentive Stock Option, Nonqualified Stock Option, Restricted Stock,
SAR, Restricted Stock Unit, Performance Award, Dividend Equivalent Right or Other Award, whether granted singly
or in combination or in tandem (each individually referred to herein as an “Incentive”).
2.6
“Award Agreement” means a written agreement between a Participant and the Company which sets
out the terms of the grant of an Award.
2.7
“Award Period” means the period set forth in the Award Agreement during which one or more
Incentives granted under an Award may be exercised.
2.8
2.9
“Board” means the board of directors of the Company.
“Board Approval Date” has the meaning set forth in the Preamble to the Plan.
2.10
“Change in Control” means, unless the Committee determines otherwise with respect to an Award at
the time the Award is granted or unless otherwise defined for purposes of an Award in a written employment, services
or other agreement between the Participant and the Company or a Related Company, the occurrence of any of the
following events:
(a)
an acquisition by any Entity of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of forty percent (40%) or more of either (1) the number of then
outstanding shares of common stock of the Company (the “Outstanding Company Common Stock”) or (2) the
combined voting power of the then outstanding voting securities of the Company entitled to vote generally in
the election of directors (the “Outstanding Company Voting Securities”), provided, however, that the following
acquisitions shall not constitute a Change in Control: (i) any acquisition directly from the Company, other than
an acquisition by virtue of the exercise of a conversion privilege where the security being so converted was
not acquired directly from the Company by the party exercising the conversion privilege, (ii) any acquisition
by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained
by the Company or any Related Company, or (iv) an acquisition by any Entity pursuant to a transaction that
meets the conditions of clauses (A), (B) and (C) set forth in Section 2.10(c) below;
(b)
a change in the composition of the Board during any two-year period such that the individuals
who, as of the beginning of such two-year period, constitute the Board (the “Incumbent Board”) cease for
any reason to constitute at least a majority of the Board; provided, however, that for purposes of this definition,
any individual who becomes a member of the Board subsequent to the beginning of the two-year period, whose
election, or nomination for election by the Company’s stockholders, was approved by a vote of at least a
majority of those individuals who are members of the Board and who were also members of the Incumbent
Board (or deemed to be such pursuant to this proviso) shall be considered as though such individual were a
member of the Incumbent Board; and provided further, however, that any such individual whose initial
assumption of office occurs as a result of or in connection with an actual or threatened election contest with
respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents
by or on behalf of an Entity other than the Board shall not be considered a member of the Incumbent Board;
or
(c)
the consummation of (i) a merger or consolidation of the Company with or into any other
company; (ii) a sale in one transaction or a series of transactions undertaken with a common purpose of all of
the Company’s outstanding voting securities; or (iii) a sale, lease, exchange or other transfer in one transaction
or a series of related transactions undertaken with a common purpose of all or substantially all of the Company’s
assets; excluding, however, in each case, a transaction pursuant to which:
A-2
(A)
the Entities who are the beneficial owners of the Outstanding Company Common
Stock and Outstanding Company Voting Securities immediately prior to such transaction will
beneficially own, directly or indirectly, at least fifty percent (50%) of the outstanding shares of common
stock, and the combined voting power of the then outstanding voting securities entitled to vote generally
in the election of directors, of the Successor Company in substantially the same proportions as their
ownership, immediately prior to such transaction, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities;
(B)
no Entity (other than the Company, any employee benefit plan (or related trust) of
the Company, a Related Company or a Successor Company) will beneficially own, directly or
indirectly, forty percent (40%) or more of, respectively, the outstanding shares of common stock of
the Successor Company or the combined voting power of the outstanding voting securities of the
Successor Company entitled to vote generally in the election of directors unless such ownership
resulted solely from ownership of securities of the Company prior to the transaction; and
(C)
individuals who were members of the Incumbent Board will immediately after the
consummation of the transaction constitute at least a majority of the members of the board of directors
of the Successor Company.
Where a series of transactions undertaken with a common purpose is deemed to be a transaction described in
this Section 2.10(c), the effective date of such transaction shall be the date on which the last of such transactions
is consummated.
Notwithstanding the foregoing provisions of this “Change in Control” definition, to the extent necessary to comply
with Section 409A of the Code, an event shall not constitute a “Change in Control” for purposes of the Plan, unless
such event also constitutes a change in the Company’s ownership, its effective control or the ownership of a substantial
portion of its assets within the meaning of Section 409A of the Code.
2.11
“Claim” means any claim, liability or obligation of any nature, arising out of or relating to this Plan
or an alleged breach of this Plan or an Award Agreement.
2.12
2.13
“Code” means the United States Internal Revenue Code of 1986, as amended.
“Committee” means the committee appointed or designated by the Board to administer the Plan in
accordance with Article 3 of this Plan.
2.14
“Common Stock” means the common stock, par value $0.0001 per share, which the Company is
currently authorized to issue or may in the future be authorized to issue, or any securities into which or for which the
common stock of the Company may be converted or exchanged, as the case may be, pursuant to the terms of this Plan.
2.15
“Company” is defined in the Preamble to the Plan.
2.16
“Contractor” means any natural person, who is not an Employee, rendering bona fide services to or
on behalf of the Company or a Related Company, with compensation, pursuant to a written independent contractor
agreement between such person and the Company or a Related Company, provided that such services are not rendered
in connection with the offer or sale of securities in a capital raising transaction and do not directly or indirectly promote
or maintain a market for the Company’s securities.
2.17
“Corporation” means any entity that (i) is defined as a corporation under Section 7701 of the Code
and (ii) is the Company or is in an unbroken chain of corporations (other than the Company) beginning with the
Company, if each of the corporations other than the last corporation in the unbroken chain owns stock possessing a
majority of the total combined voting power of all classes of stock in one of the other corporations in the chain. For
A-3
purposes of clause (ii) hereof, an entity shall be treated as a “corporation” if it satisfies the definition of a corporation
under Section 7701 of the Code.
2.18
“Date of Grant” means the effective date on which an Award is made to a Participant as set forth in
the applicable Award Agreement.
2.19
“Dividend Equivalent Right” means the right of the holder thereof to receive credits based on the
cash dividends that would have been paid on the shares of Common Stock specified in the Award if such shares were
held by the Participant to whom the Award is made.
2.20
“Effective Date” is defined in the Preamble to the Plan.
2.21
“Employee” means a common law employee (as defined in accordance with the Regulations and
Revenue Rulings then applicable under Section 3401(c) of the Code) of the Company or any Related Company of the
Company; provided, however, in the case of individuals whose employment status, by virtue of their employer or
residence, is not determined under Section 3401(c) of the Code, “Employee” shall mean an individual treated as an
employee for local payroll tax or employment purposes by the applicable employer under Applicable Law for the
relevant period.
2.22
“Entity” means any individual, entity or group (within the meaning of Section 13(d)(3) or Section 14
(d)(2) of the Exchange Act.
2.23
“Exchange Act” means the United States Securities Exchange Act of 1934, as amended.
2.24
“Exempt Shares” means shares of Common Stock subject to an Award that has been granted with (or
that has been amended by the Committee to include) more favorable vesting provisions than those set forth in Section
7.2. No more than five percent (5%) of the shares of Common Stock that may be delivered pursuant to Awards may
be shares designated as “Exempt Shares.”
2.25
2.26
“Exercise Date” is defined in Section 8.3(b) hereof.
“Exercise Notice” is defined in Section 8.3(b) hereof.
2.27
“Fair Market Value” means, as of a particular date, (a) if the shares of Common Stock are listed on
any established national securities exchange, the closing sales price per share of Common Stock on the consolidated
transaction reporting system for the principal securities exchange for the Common Stock on that date, or, if there shall
have been no such sale so reported on that date, on the last preceding date on which such a sale was so reported; (b)
if the shares of Common Stock are not so listed, but are quoted on an automated quotation system, the closing sales
price per share of Common Stock reported on the automated quotation system on that date, or, if there shall have been
no such sale so reported on that date, on the last preceding date on which such a sale was so reported; (c) if the Common
Stock is not so listed or quoted, the mean between the closing bid and asked price on that date, or, if there are no
quotations available for such date, on the last preceding date on which such quotations shall be available, as reported
by the National Association of Securities Dealer, Inc.’s OTC Bulletin Board or the Pink OTC Markets, Inc. (previously
known as the National Quotation Bureau, Inc.); or (d) if none of the above is applicable, such amount as may be
determined by the Committee (acting on the advice of an Independent Third Party, should the Committee elect in its
sole discretion to utilize an Independent Third Party for this purpose), in good faith, to be the fair market value per
share of Common Stock. The determination of Fair Market Value shall, where applicable, be in compliance with
Section 409A of the Code.
2.28
“Full Value Award” means any Award with a net benefit to the Participant, without regard to any
restrictions such as those described in Section 6.4(b), equal to the aggregate Fair Market Value of the total shares of
Common Stock subject to the Award. Full Value Awards include Restricted Stock and Restricted Stock Units, but do
not include Stock Options and SARs.
A-4
2.29
2.30
2.31
“Immediate Family Members” is defined in Section 15.8 hereof.
“Incentive” is defined in Section 2.5 hereof.
“Incentive Stock Option” means an incentive stock option within the meaning of Section 422 of the
Code, granted pursuant to this Plan.
2.32
“Incumbent Board” is defined in Section 2.10(b) hereof.
2.33
“Independent Third Party” means an individual or entity independent of the Company having
experience in providing investment banking or similar appraisal or valuation services and with expertise generally in
the valuation of securities or other property for purposes of this Plan. The Committee may utilize one or more
Independent Third Parties.
2.34
“Nonqualified Stock Option” means a nonqualified stock option, granted pursuant to this Plan, which
is not an Incentive Stock Option.
2.35
“Option Price” means the price which must be paid by a Participant upon exercise of a Stock Option
to purchase a share of Common Stock.
2.36
2.37
2.38
2.39
“Other Award” means an Award issued pursuant to Section 6.9 hereof.
“Outside Director” means a director of the Company who is not an Employee or a Contractor.
“Outstanding Company Common Stock” is defined in Section 2.10(a) hereof.
“Outstanding Company Voting Securities” is defined in Section 2.10(a) hereof.
2.40
“Parent Company” means a company or other entity which as a result of a Change in Control owns
the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries.
2.41
“Participant” means an Employee, Contractor or an Outside Director to whom an Award is granted
under this Plan.
2.42
“Performance Award” means an Award hereunder of cash, shares of Common Stock, units or rights
based upon, payable in, or otherwise related to, Common Stock pursuant to Section 6.7 hereof.
2.43
2.44
“Performance Goal” means any of the Performance Criteria set forth in Section 6.10 hereof.
“Plan” is defined in the Preamble to the Plan.
2.45
“Prior Plan Awards” means (i) any awards under the Prior Plans that are outstanding on the Effective
Date, and that on or after the Effective Date, are forfeited, expire or are canceled; and (ii) any shares subject to awards
relating to Common Stock under the Prior Plans that, on or after the Effective Date are settled in cash.
2.46
as of April 4, 2016.
“Prior Plans” means the 2015 Plan and the Company’s Restated 1996 Flexible Stock Incentive Plan
2.47
“Related Company” means any Subsidiary and any other entity that is directly or indirectly controlled
by, in control of or under common control with the Company.
A-5
2.48
“Restricted Stock” means shares of Common Stock issued or transferred to a Participant pursuant to
Section 6.4 of this Plan which are subject to restrictions or limitations set forth in this Plan and in the related Award
Agreement.
2.49
“Restricted Stock Units” means units awarded to Participants pursuant to Section 6.6 hereof, which
are convertible into Common Stock at such time as such units are no longer subject to restrictions as established by
the Committee.
2.50
“Restriction Period” is defined in Section 6.4(b)(i) hereof.
2.51
“SAR” or “Stock Appreciation Right” means the right to receive an amount, in cash and/or Common
Stock, equal to the excess of the Fair Market Value of a specified number of shares of Common Stock as of the date
the SAR is exercised (or, as provided in the Award Agreement, converted) over the SAR Price for such shares.
2.52
“SAR Price” means the exercise price or conversion price of each share of Common Stock covered
by a SAR, determined on the Date of Grant of the SAR.
2.53
“Significant Operating Unit” means a Related Company that is designated by the Committee or the
Successor Company from time to time as a Significant Operating Unit for purposes of the Plan.
2.54
“Significant Operating Unit Transaction” means a merger or consolidation of a Significant Operating
Unit with or into any other company, entity or person or a sale or disposition by the Company, in one transaction or a
series of related transactions, of all or substantially all the Operating Unit’s assets, other than a transaction with a
Subsidiary or another corporation or other entity that is controlled by the Company.
2.55
2.56
“Spread” is defined in Section 12.4(b) hereof.
“Stock Option” means a Nonqualified Stock Option or an Incentive Stock Option.
2.57
“Subsidiary” means (i) any corporation in an unbroken chain of corporations beginning with the
Company, if each of the corporations other than the last corporation in the unbroken chain owns stock possessing a
majority of the total combined voting power of all classes of stock in one of the other corporations in the chain, (ii)
any limited partnership, if the Company or any corporation described in item (i) above owns a majority of the general
partnership interest and a majority of the limited partnership interests entitled to vote on the removal and replacement
of the general partner, and (iii) any partnership or limited liability company, if the partners or members thereof are
composed only of the Company, any corporation listed in item (i) above or any limited partnership listed in item (ii)
above. “Subsidiaries” means more than one of any such corporations, limited partnerships, partnerships or limited
liability companies.
2.58
“Successor Company” means the surviving company, the successor company or Parent Company, as
applicable, in connection with a Change in Control or the company or other entity which as a result of a Significant
Operating Unit Transaction owns the Significant Operating Unit or all or substantially all of the Significant Operating
Unit’s shares or assets either directly or through one or more subsidiaries.
2.59
“Termination of Service” occurs when a Participant who is (i) an Employee of the Company or any
Related Company ceases to serve as an Employee of the Company and its Related Companies, for any reason; (ii) an
Outside Director of the Company or a Related Company ceases to serve as a director of the Company and its Related
Companies for any reason; or (iii) a Contractor of the Company or a Related Company ceases to serve as a Contractor
of the Company and its Related Companies for any reason. Except as may be necessary or desirable to comply with
applicable federal or state law, a “Termination of Service” shall not be deemed to have occurred when a Participant
who is an Employee becomes an Outside Director or Contractor or vice versa. If, however, a Participant who is an
Employee and who has an Incentive Stock Option ceases to be an Employee but does not suffer a Termination of
Service, and if that Participant does not exercise the Incentive Stock Option within the time required under Section
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422 of the Code upon ceasing to be an Employee, the Incentive Stock Option shall thereafter become a Nonqualified
Stock Option. Notwithstanding the foregoing provisions of this Section 2.59, in the event an Award issued under the
Plan is subject to Section 409A of the Code, then, in lieu of the foregoing definition and to the extent necessary to
comply with the requirements of Section 409A of the Code, the definition of “Termination of Service” for purposes
of such Award shall be the definition of “separation from service” provided for under Section 409A of the Code and
the regulations or other guidance issued thereunder.
2.60
“Total and Permanent Disability” means, unless otherwise defined by the Committee for purposes
of the Plan in the instrument evidencing an Award or in a written employment, services or other agreement between
the Participant and the Company or a Related Company, a Participant is qualified for long-term disability benefits
under the Company’s or Related Company’s disability plan or insurance policy; or, if no such plan or policy is then
in existence or if the Participant is not eligible to participate in such plan or policy, that the Participant, because of a
physical or mental condition resulting from bodily injury, disease, or mental disorder, is unable to perform his or her
duties of employment for a period of twelve (12) continuous months, as determined in good faith by the Committee,
based upon medical reports or other evidence satisfactory to the Committee; provided that, with respect to any Incentive
Stock Option, Total and Permanent Disability shall have the meaning given it under the rules governing Incentive
Stock Options under the Code. Notwithstanding the foregoing provisions of this Section 2.60, in the event an Award
issued under the Plan is subject to Section 409A of the Code, then, in lieu of the foregoing definition and to the extent
necessary to comply with the requirements of Section 409A of the Code, the definition of “Total and Permanent
Disability” for purposes of such Award shall be the definition of “disability” provided for under Section 409A of the
Code and the regulations or other guidance issued thereunder.
ARTICLE 3
ADMINISTRATION
3.1
General Administration; Establishment of Committee. Subject to the terms of this Article 3, the
Plan shall be administered by the Board or such committee of the Board as is designated by the Board to administer
the Plan (the “Committee”). The Committee shall consist of not fewer than two persons. Any member of the Committee
may be removed at any time, with or without cause, by resolution of the Board. Any vacancy occurring in the membership
of the Committee may be filled by appointment by the Board. Membership on the Committee shall be limited to those
members of the Board who are “non-employee directors” as defined in Rule 16b-3 promulgated under the Exchange
Act. At any time there is no Committee to administer the Plan, any references in this Plan to the Committee shall be
deemed to refer to the Board.
3.2
Designation of Participants and Awards.
(a)
The Committee shall determine and designate from time to time the eligible persons to whom
Awards will be granted and shall set forth in each related Award Agreement, where applicable, the Award
Period, the Date of Grant, and such other terms, provisions, limitations, and performance requirements, as are
approved by the Committee, but not inconsistent with the Plan. The Committee shall determine whether an
Award shall include one type of Incentive or two or more Incentives granted in combination or two or more
Incentives granted in tandem (that is, a joint grant where exercise of one Incentive results in cancellation of
all or a portion of the other Incentive). Although the members of the Committee shall be eligible to receive
Awards, all decisions with respect to any Award, and the terms and conditions thereof, to be granted under the
Plan to any member of the Committee shall be made solely and exclusively by the other members of the
Committee, or if such member is the only member of the Committee, by the Board.
(b)
Notwithstanding Section 3.2(a), to the extent permitted by Applicable Law, the Board may,
in its discretion and by a resolution adopted by the Board, authorize one or more officers of the Company (an
“Authorized Officer”) to (i) designate one or more Employees or Contractors as eligible persons to whom
Awards will be granted under the Plan, and (ii) determine the number of shares of Common Stock that will
be subject to such Awards; provided, that the resolution of the Board granting such authority (x) shall not
authorize an officer to designate himself as a recipient of any Award, and (y) must comply in all material
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respects with the requirements of Applicable Law, including, Section 152 of Delaware General Corporation
Law or any successor thereto.
3.3
Authority of the Committee. The Committee, in its discretion, shall (i) interpret the Plan and Award
Agreements, (ii) prescribe, amend, and rescind any rules and regulations, as necessary or appropriate for the
administration of the Plan, (iii) establish Performance Goals for an Award and certify the extent of their achievement,
and (iv) make such other determinations or certifications and take such other action as it deems necessary or advisable
in the administration of the Plan. Any interpretation, determination, or other action made or taken by the Committee
shall be final, binding, and conclusive on all interested parties. The Committee’s discretion set forth herein shall not
be limited by any provision of the Plan, including any provision which by its terms is applicable notwithstanding any
other provision of the Plan to the contrary.
Except as set forth in Section 3.2(b) above, the Committee may delegate to officers of the Company, pursuant
to a written delegation, the authority to perform specified functions under the Plan. Any actions taken by any officers
of the Company pursuant to such written delegation of authority shall be deemed to have been taken by the Committee.
With respect to restrictions in the Plan that are based on the requirements of Rule 16b‑3 promulgated under
the Exchange Act, Section 422 of the Code, the rules of any exchange or inter-dealer quotation system upon which
the Company’s securities are listed or quoted, or any other Applicable Law, to the extent that any such restrictions are
no longer required by Applicable Law, the Committee shall have the sole discretion and authority to grant Awards that
are not subject to such mandated restrictions and/or to waive any such mandated restrictions with respect to outstanding
Awards.
ARTICLE 4
ELIGIBILITY
Any Employee (including an Employee who is also a director or an officer), Contractor or Outside Director
of the Company or a Related Company whose judgment, initiative, and efforts contributed or may be expected to
contribute to the successful performance of the Company or a Related Company is eligible to participate in the Plan;
provided that only Employees of a Corporation shall be eligible to receive Incentive Stock Options. The Committee,
upon its own action, may grant, but shall not be required to grant, an Award to any Employee, Contractor or Outside
Director. Awards may be granted by the Committee at any time and from time to time to new Participants, or to then
Participants, or to a greater or lesser number of Participants, and may include or exclude previous Participants, as the
Committee shall determine. Except as required by this Plan, Awards need not contain similar provisions. The
Committee’s determinations under the Plan (including without limitation determinations of which Employees,
Contractors or Outside Directors, if any, are to receive Awards, the form, amount and timing of such Awards, the terms
and provisions of such Awards and the agreements evidencing same) need not be uniform and may be made by it
selectively among Participants who receive, or are eligible to receive, Awards under the Plan.
ARTICLE 5
SHARES SUBJECT TO PLAN
5.1
Number Available for Awards. Subject to adjustment as provided in Articles 11 and 12 and subject
to Section 5.3, the maximum number of shares of Common Stock that may be delivered pursuant to Awards granted
under the Plan is 5,563,134 shares plus any Prior Plan Awards, of which up to 5,000,000 shares of Common Stock
may be delivered pursuant to Incentive Stock Options. Shares to be issued may be made available from authorized
but unissued Common Stock, Common Stock held by the Company in its treasury, or Common Stock purchased by
the Company on the open market or otherwise. During the term of this Plan, the Company will at all times reserve
and keep available the number of shares of Common Stock that shall be sufficient to satisfy the requirements of this
Plan.
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5.2
Reuse of Shares. Subject to Section 5.3, to the extent that any Award under this Plan or any Prior
Plan Award shall be forfeited, shall expire or be canceled, in whole or in part, then the number of shares of Common
Stock covered by the Award or Prior Plan Award or stock option so forfeited, expired or canceled may again be awarded
pursuant to the provisions of this Plan. Awards that may be satisfied either by the issuance of shares of Common Stock
or by cash or other consideration shall be counted against the maximum number of shares of Common Stock that may
be issued under this Plan only during the period that the Award is outstanding or to the extent the Award is ultimately
satisfied by the issuance of shares of Common Stock. Shares of Common Stock otherwise deliverable pursuant to an
Award that are withheld upon exercise or vesting of an Award for purposes of paying the exercise price or tax
withholdings (including, without limitation, any shares withheld in connection with the exercise of stock-settled SARs)
shall be treated as delivered to the Participant and shall be counted against the maximum number of shares of Common
Stock that may be issued under this Plan. Awards will not reduce the number of shares of Common Stock that may
be issued pursuant to this Plan if the settlement of the Award will not require the issuance of shares of Common Stock,
as, for example, a SAR that can be satisfied only by the payment of cash. Notwithstanding any provisions of the Plan
to the contrary, only shares forfeited back to the Company or shares canceled on account of termination, expiration or
lapse of an Award shall again be available for grant of Incentive Stock Options under the Plan, but shall not increase
the maximum number of shares described in Section 5.1 above as the maximum number of shares of Common Stock
that may be delivered pursuant to Incentive Stock Options.
5.3
Fungible Share Provision. The aggregate number of shares of Common Stock available for issuance
under the Plan shall be reduced by 2.0 shares for each share delivered in settlement of Awards other than Stock Options
or SARs and one share for each share delivered in settlement of Stock Options or SARs. Any shares of Common Stock
that again become available for issuance under the Plan pursuant to Section 5.2 shall be added back to the Plan as 2.0
shares if such shares were subject to Awards other than Stock Options or SARs and one share if such shares were
subject to Stock Options or SARs.
5.4
Limitation on Outside Director Awards. No Outside Director may be granted any Award or Awards
denominated in shares that exceed in the aggregate $700,000 in Fair Market Value (such Fair Market Value computed
as of the Date of Grant) in any calendar year period, plus an additional $700,000 in Fair Market Value (determined as
of the Date of Grant) for one-time awards to a newly appointed or elected Outside Director. The foregoing limit shall
not apply to any Award made pursuant to deferred compensation arrangements in lieu of all or a portion of cash retainers.
ARTICLE 6
GRANT OF AWARDS
6.1
In General.
(a)
The grant of an Award shall be authorized by the Committee and shall be evidenced by an
Award Agreement setting forth the Incentive or Incentives being granted, the total number of shares of Common
Stock subject to the Incentive(s), the Option Price (if applicable), the Award Period, the Date of Grant, and
such other terms, provisions, limitations, and performance objectives, as are approved by the Committee, but
(i) not inconsistent with the Plan, and (ii) to the extent an Award issued under the Plan is subject to Section
409A of the Code, in compliance with the applicable requirements of Section 409A of the Code and the
regulations or other guidance issued thereunder. The Company shall execute an Award Agreement with a
Participant after the Committee approves the issuance of an Award. Any Award granted pursuant to this Plan
must be granted within the term of the Plan, as set forth in Article 10 below. The Plan shall be submitted to
the Company’s stockholders for approval at the first stockholder meeting after the Board Approval Date and
no Awards may be granted under the Plan prior to the Effective Date. The grant of an Award to a Participant
shall not be deemed either to entitle the Participant to, or to disqualify the Participant from, receipt of any
other Award under the Plan.
(b)
If the Committee establishes a purchase price for an Award, the Participant must accept such
Award within a period of thirty (30) days (or such shorter period as the Committee may specify) after the Date
of Grant by executing the applicable Award Agreement and paying such purchase price.
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(c)
Any Award under this Plan that is settled in whole or in part in cash on a deferred basis may
provide for interest equivalents to be credited with respect to such cash payment. Interest equivalents may be
compounded and shall be paid upon such terms and conditions as may be specified by the grant.
6.2
Option Price. The Option Price for any share of Common Stock which may be purchased under a
Nonqualified Stock Option for any share of Common Stock must be equal to or greater than the Fair Market Value of
the share on the Date of Grant. The Option Price for any share of Common Stock which may be purchased under an
Incentive Stock Option must be at least equal to the Fair Market Value of the share on the Date of Grant; if an Incentive
Stock Option is granted to an Employee who owns or is deemed to own (by reason of the attribution rules of Section
424(d) of the Code) more than ten percent (10%) of the combined voting power of all classes of stock of the Company
(or any parent or Subsidiary), the Option Price shall be at least one hundred ten percent (110%) of the Fair Market
Value of the Common Stock on the Date of Grant. No dividends or Dividend Equivalent Rights may be paid or granted
with respect to any Stock Option granted hereunder.
6.3
Maximum ISO Grants. The Committee may not grant Incentive Stock Options under the Plan to
any Employee which would permit the aggregate Fair Market Value (determined on the Date of Grant) of the Common
Stock with respect to which Incentive Stock Options (under this and any other plan of the Company and its Subsidiaries)
are exercisable for the first time by such Employee during any calendar year to exceed $100,000. To the extent any
Stock Option granted under this Plan which is designated as an Incentive Stock Option exceeds this limit or otherwise
fails to qualify as an Incentive Stock Option, such Stock Option (or any such portion thereof) shall be a Nonqualified
Stock Option. In such case, the Committee shall designate which stock will be treated as Incentive Stock Option stock
by causing the issuance of a separate stock certificate (if applicable) and identifying such stock as Incentive Stock
Option stock on the Company’s stock transfer records.
6.4
Restricted Stock. If Restricted Stock is granted to or received by a Participant under an Award
(including a Stock Option), the Committee shall set forth in the related Award Agreement: (i) the number of shares of
Common Stock awarded, (ii) the price, if any, to be paid by the Participant for such Restricted Stock and the method
of payment of the price, (iii) the time or times within which such Award may be subject to forfeiture, (iv) specified
Performance Goals of the Company, a Related Company, any division thereof or any group of Employees of the
Company, or other criteria, which the Committee determines must be met in order to remove any restrictions (including
vesting) on such Award, and (v) all other terms, limitations, restrictions, and conditions of the Restricted Stock, which
shall be consistent with this Plan, to the extent applicable and, to the extent Restricted Stock granted under the Plan
is subject to Section 409A of the Code, in compliance with the applicable requirements of Section 409A of the Code
and the regulations or other guidance issued thereunder. The provisions of Restricted Stock need not be the same with
respect to each Participant.
(a)
Legend on Shares. The Company shall electronically register the Restricted Stock awarded
to a Participant in the name of such Participant, which shall bear an appropriate legend referring to the terms,
conditions, and restrictions applicable to such Restricted Stock, substantially as provided in Section 15.10 of
the Plan. No stock certificate or certificates shall be issued with respect to such shares of Common Stock,
unless, following the expiration of the Restriction Period (as defined in Section 6.4(b)(i)) without forfeiture
in respect of such shares of Common Stock, the Participant requests delivery of the certificate or certificates
by submitting a written request to the Committee (or such party designated by the Company) requesting
delivery of the certificates. The Company shall deliver the certificates requested by the Participant to the
Participant as soon as administratively practicable following the Company’s receipt of such request.
(b)
Restrictions and Conditions. Shares of Restricted Stock shall be subject to the following
restrictions and conditions:
(i)
Subject to the other provisions of this Plan and the terms of the particular Award
Agreements, during such period as may be determined by the Committee commencing on the Date
of Grant or the date of exercise of an Award (the “Restriction Period”), the Participant shall not be
permitted to sell, transfer, pledge or assign shares of Restricted Stock. Except for these limitations
and the limitations set forth in Section 7.2 below, the Committee may in its sole discretion, remove
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any or all of the restrictions on such Restricted Stock whenever it may determine that, by reason of
changes in Applicable Laws or other changes in circumstances arising after the date of the Award,
such action is appropriate.
(ii)
Except as provided in sub-paragraph (i) above or in the applicable Award Agreement,
the Participant shall have, with respect to his or her Restricted Stock, all of the rights of a stockholder
of the Company, including the right to vote the shares, and the right to receive any dividends thereon;
provided that, if the right to receive dividends is awarded, then (A) any cash dividends and stock
dividends with respect to the Restricted Stock shall be withheld by the Company for the participant’s
account, and interest may be credited on the amount of the cash dividends withheld at a rate and subject
to such terms as determined by the Committee; and (B) such cash dividends or stock dividends so
withheld by the Company and attributable to any particular share of Restricted Stock (and earnings
thereon, if applicable) shall be distributed to such Participant in cash or, at the discretion of the
Committee, in shares of Common Stock having a Fair Market Value equal to the amount of such
dividends, if applicable, upon the release of restrictions on such share and, if such share is forfeited,
the Participant shall have no right to such dividends. Certificates for shares of Common Stock free
of restriction under this Plan shall be delivered to the Participant promptly after, and only after, the
Restriction Period shall expire without forfeiture in respect of such shares of Common Stock or after
any other restrictions imposed on such shares of Common Stock by the applicable Award Agreement
or other agreement have expired. Certificates for the shares of Common Stock forfeited under the
provisions of the Plan and the applicable Award Agreement shall be promptly returned to the Company
by the forfeiting Participant. Each Award Agreement shall require that each Participant, in connection
with the issuance of a certificate for Restricted Stock, shall endorse such certificate in blank or execute
a stock power in form satisfactory to the Company in blank and deliver such certificate and executed
stock power to the Company.
(iii)
The Restriction Period of Restricted Stock shall commence on the Date of Grant or
the date of exercise of an Award, as specified in the Award Agreement, and, subject to Article 12 of
the Plan, unless otherwise established by the Committee in the Award Agreement setting forth the
terms of the Restricted Stock, shall expire upon satisfaction of the conditions set forth in the Award
Agreement; such conditions may provide for vesting based on length of continuous service or such
Performance Goals, as may be determined by the Committee in its sole discretion.
(iv)
Except as otherwise provided in the particular Award Agreement, upon Termination
of Service for any reason during the Restriction Period, the nonvested shares of Restricted Stock shall
be forfeited by the Participant. In the event a Participant has paid any consideration to the Company
for such forfeited Restricted Stock, the Committee shall specify in the Award Agreement that either
(i) the Company shall be obligated to, or (ii) the Company may, in its sole discretion, elect to, pay to
the Participant, as soon as practicable after the event causing forfeiture, in cash, an amount equal to
the lesser of the total consideration paid by the Participant for such forfeited shares or the Fair Market
Value of such forfeited shares as of the date of Termination of Service, as the Committee, in its sole
discretion shall select. Upon any forfeiture, all rights of a Participant with respect to the forfeited
shares of the Restricted Stock shall cease and terminate, without any further obligation on the part of
the Company.
6.5
SARs. The Committee may grant SARs to any Participant, either as a separate Award or in connection
with a Stock Option. SARs shall be subject to such terms and conditions as the Committee shall impose, provided
that such terms and conditions are (i) not inconsistent with the Plan, and (ii) to the extent a SAR issued under the Plan
is subject to Section 409A of the Code, in compliance with the applicable requirements of Section 409A of the Code
and the regulations or other guidance issued thereunder. The grant of the SAR may provide that the holder may be
paid for the value of the SAR either in cash or in shares of Common Stock, or a combination thereof. In the event of
the exercise of a SAR payable in shares of Common Stock, the holder of the SAR shall receive that number of whole
shares of Common Stock having an aggregate Fair Market Value on the date of exercise equal to the value obtained
by multiplying (i) the difference between the Fair Market Value of a share of Common Stock on the date of exercise
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over the SAR Price as set forth in such SAR (or other value specified in the agreement granting the SAR), by (ii) the
number of shares of Common Stock as to which the SAR is exercised, with a cash settlement to be made for any
fractional shares of Common Stock. The SAR Price for any share of Common Stock subject to a SAR may be equal
to or greater than the Fair Market Value of the share on the Date of Grant. The Committee, in its sole discretion, may
place a ceiling on the amount payable upon exercise of a SAR, but any such limitation shall be specified at the time
that the SAR is granted. No dividends or Dividend Equivalent Rights may be paid or granted with respect to any Stock
Appreciation Right granted hereunder.
6.6
Restricted Stock Units. Restricted Stock Units may be awarded or sold to any Participant under such
terms and conditions as shall be established by the Committee, provided, however, that such terms and conditions are
(i) not inconsistent with the Plan, and (ii) to the extent a Restricted Stock Unit issued under the Plan is subject to
Section 409A of the Code, in compliance with the applicable requirements of Section 409A of the Code and the
regulations or other guidance issued thereunder. Restricted Stock Units shall be subject to such restrictions as the
Committee determines, including, without limitation, (a) a prohibition against sale, assignment, transfer, pledge,
hypothecation or other encumbrance for a specified period; or (b) a requirement that the holder forfeit (or in the case
of shares of Common Stock or units sold to the Participant, resell to the Company at cost) such shares or units in the
event of Termination of Service during the period of restriction.
6.7
Performance Awards.
(a)
The Committee may grant Performance Awards to one or more Participants. The terms and
conditions of Performance Awards shall be specified at the time of the grant and may include provisions
establishing the performance period, the Performance Goals to be achieved during a performance period, and
the maximum or minimum settlement values, provided that such terms and conditions are (i) not inconsistent
with the Plan and (ii) to the extent a Performance Award issued under the Plan is subject to Section 409A of
the Code, in compliance with the applicable requirements of Section 409A of the Code and the regulations or
other guidance issued thereunder. If the Performance Award is to be in shares of Common Stock, the
Performance Awards may provide for the issuance of the shares of Common Stock at the time of the grant of
the Performance Award or at the time of the certification by the Committee that the Performance Goals for
the performance period have been met; provided, however, if shares of Common Stock are issued at the time
of the grant of the Performance Award and if, at the end of the performance period, the Performance Goals
are not certified by the Committee to have been fully satisfied, then, notwithstanding any other provisions of
this Plan to the contrary, the Common Stock shall be forfeited in accordance with the terms of the grant to the
extent the Committee determines that the Performance Goals were not met. The forfeiture of shares of Common
Stock issued at the time of the grant of the Performance Award due to failure to achieve the established
Performance Goals shall be separate from and in addition to any other restrictions provided for in this Plan
that may be applicable to such shares of Common Stock. Each Performance Award granted to one or more
Participants shall have its own terms and conditions.
If the Committee determines, in its sole discretion, that the established performance measures or
objectives are no longer suitable because of a change in the Company’s business, operations, corporate
structure, or for other reasons that the Committee deemed satisfactory, the Committee may modify the
performance measures or objectives and/or the performance period.
(b)
Performance Awards may be valued by reference to the Fair Market Value of a share of
Common Stock or according to any formula or method deemed appropriate by the Committee, in its sole
discretion, including, but not limited to, achievement of Performance Goals or other specific financial,
production, sales or cost performance objectives that the Committee believes to be relevant to the Company’s
business and/or remaining in the employ of the Company or a Related Company for a specified period of time.
Performance Awards may be paid in cash, shares of Common Stock, or other consideration, or any combination
thereof. If payable in shares of Common Stock, the consideration for the issuance of such shares may be the
achievement of the performance objective established at the time of the grant of the Performance Award.
Performance Awards may be payable in a single payment or in installments and may be payable at a specified
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date or dates or upon attaining the performance objective. The extent to which any applicable performance
objective has been achieved shall be conclusively determined by the Committee.
6.8
Dividend Equivalent Rights. The Committee may grant a Dividend Equivalent Right to any
Participant, either as a component of another Award (to the extent permitted under the Plan) or as a separate Award.
The terms and conditions of the Dividend Equivalent Right shall be specified by the grant. Dividend equivalents
credited to the holder of a Dividend Equivalent Right may be paid currently or may be deemed to be reinvested in
additional shares of Common Stock (which may thereafter accrue additional dividend equivalents). Any such
reinvestment shall be at the Fair Market Value at the time thereof. Dividend Equivalent Rights may be settled in cash
or shares of Common Stock, or a combination thereof, in a single payment or in installments. A Dividend Equivalent
Right granted as a component of another Award may provide that such Dividend Equivalent Right shall be settled upon
exercise, settlement, or payment of, or lapse of restrictions on, such other Award, and that such Dividend Equivalent
Right granted as a component of another Award may also contain terms and conditions different from such other Award;
provided that (i) any Dividend Equivalent Rights with respect to such Award shall be withheld by the Company for
the Participant’s account until such Award is vested, subject to such terms as determined by the Committee; and (ii)
such Dividend Equivalent Rights so withheld by the Company and attributable to any particular Award shall be
distributed to such Participant in cash or, at the discretion of the Committee, in shares of Common Stock having a Fair
Market Value equal to the amount of such Dividend Equivalent Rights, if applicable, upon vesting of the Award and
if such Award is forfeited, the Participant shall have no right to such Dividend Equivalent Rights. No Dividend
Equivalent Rights may be paid or granted with respect to any Stock Option or SAR.
6.9
Other Awards. The Committee may grant to any Participant other forms of Awards, based upon,
payable in, or otherwise related to, in whole or in part, shares of Common Stock, if the Committee determines that
such other form of Award is consistent with the purpose and restrictions of this Plan. The terms and conditions of such
other form of Award shall be specified by the grant. Such Other Awards may be granted for no cash consideration,
for such minimum consideration as may be required by Applicable Law, or for such other consideration as may be
specified by the grant.
6.10
Performance Goals. Awards of Restricted Stock, Restricted Stock Units, Performance Award and
Other Awards (whether relating to cash or shares of Common Stock) under the Plan may be made subject to the
attainment of Performance Goals relating to one or more business criteria which may consist of one or more or any
combination of the following criteria: cash flow (including, but not limited to, operating cash flow, free cash flow or
cash flow return on capital); cost; working capital; earnings (and any variations thereon, including, without limitation,
earnings before interest and taxes; earnings before interest, taxes, depreciation and amortization; earnings before
interest, taxes, depreciation, amortization, and stock-based compensation or other similar expenses; operating earnings);
earnings per share; book value per share; share price; operating income (including or excluding depreciation,
amortization, extraordinary items, restructuring charges or other expenses); revenues (and any variations thereon,
including, without limitation, gross revenues; net revenues; revenues from products); expenses (and any variations
thereon); assets under management; fees based on assets under management; monetized units or products; sales (and
any variations thereon); operating margins; gross margins; return on assets; return on equity; debt; debt plus equity;
credit quality or debt ratings; profit (and any variations thereon) market or economic value added; stock price
appreciation; total stockholder return; cost control; strategic initiatives; market share; net income; return on invested
capital; improvements in capital structure; capital expenditures; operational improvements; or customer satisfaction,
employee satisfaction, services performance, subscriber, cash management or asset management metrics; the
accomplishment of mergers, acquisitions, dispositions, public offerings or similar extraordinary business transactions;
inventory levels, inventory turn or shrinkage; or total return to stockholders (“Performance Criteria”). Any
Performance Criteria may be used to measure the performance of the Company as a whole or any business unit of the
Company and may be measured relative to a peer group or index. Any Performance Criteria may include or exclude
(i) events that are of an unusual nature or indicate infrequency of occurrence; (ii) gains or losses acquisitions or
divestitures, (iii) asset write-downs; (iv) litigation or claim judgments or settlements; (v) foreign exchange gains and
losses; (vi) impairments; (vi) changes in tax or accounting regulations or laws, (vii) the effect of a merger or acquisition,
any reorganization or restructuring programs; or (viii) other similar occurrences. In all other respects, Performance
Criteria shall be calculated in accordance with the Company’s financial statements, under generally accepted accounting
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principles, or under a methodology established by the Committee prior to the issuance of an Award which is consistently
applied and identified in the audited financial statements, including footnotes, or the Compensation Discussion and
Analysis section of the Company’s annual report.
6.11
Tandem Awards. The Committee may grant two or more Incentives in one Award in the form of a
“tandem Award,” so that the right of the Participant to exercise one Incentive shall be canceled if, and to the extent,
the other Incentive is exercised. For example, if a Stock Option and a SAR are issued in a tandem Award, and the
Participant exercises the SAR with respect to one hundred (100) shares of Common Stock, the right of the Participant
to exercise the related Stock Option shall be canceled to the extent of one hundred (100) shares of Common Stock.
6.12 No Repricing of Stock Options or SARs. The Committee may not “reprice” any Stock Option or
SAR. For purposes of this Section 6.12, “reprice” means any of the following or any other action that has the same
effect: (i) amending a Stock Option or SAR to reduce its Option Price or SAR Price, respectively, (ii) canceling a
Stock Option or SAR at a time when its Option Price or SAR Price, respectively, exceeds the Fair Market Value of a
share of Common Stock in exchange for cash or a Stock Option, SAR, award of Restricted Stock or other equity award,
or (iii) taking any other action that is treated as a repricing under generally accepted accounting principles, provided
that nothing in this Section 6.12 shall prevent the Committee from making adjustments pursuant to Article 11, from
exchanging or cancelling Incentives pursuant to Article 12, or substituting Incentives in accordance with Article 14.
6.13 Recoupment for Restatements. Notwithstanding any other language in this Plan to the contrary, the
Company may recoup all or any portion of any shares or cash paid to a Participant in connection with an Award, as
set forth in the Company’s clawback policy, if any, approved by the Company’s Board from time to time.
ARTICLE 7
AWARD PERIOD; VESTING
7.1
Award Period. Subject to the other provisions of this Plan, the Committee may, in its discretion,
provide that an Incentive may not be exercised in whole or in part for any period or periods of time or beyond any date
specified in the Award Agreement. Except as provided in the Award Agreement, an Incentive may be exercised in
whole or in part at any time during its term. The Award Period for an Incentive shall be reduced or terminated upon
Termination of Service. No Incentive granted under the Plan may be exercised at any time after the end of its Award
Period. No portion of any Incentive may be exercised after the expiration of ten (10) years from its Date of Grant.
However, if an Employee owns or is deemed to own (by reason of the attribution rules of Section 424(d) of the Code)
more than ten percent (10%) of the combined voting power of all classes of stock of the Company (or any parent or
Subsidiary) and an Incentive Stock Option is granted to such Employee, the term of such Incentive Stock Option (to
the extent required by the Code at the time of grant) shall be no more than five (5) years from the Date of Grant.
7.2
Vesting. The Committee, in its sole discretion, shall establish the vesting terms applicable to an
Incentive, provided that any such vesting terms shall not be inconsistent with the terms of the Plan, including, without
limitation, this Section 7.2. Except as otherwise provided herein, no Incentive (nor any portion of an Incentive, even
on a pro rata basis) may vest earlier than one (1) year after the Date of Grant; provided, however, with respect to grants
of Awards made on the date of an Annual Stockholders Meeting to Outside Directors, such one (1) year vesting period
shall be deemed satisfied if such Awards vest on the earlier of the first anniversary of the Date of Grant or the first
Annual Stockholders Meeting following the Date of Grant. Except as otherwise provided herein, the Committee may
not accelerate the date on which all or any portion of an Award may be vested or waive the Restriction Period on a
Full Value Award except upon (i) the Participant’s death or Total and Permanent Disability; (ii) retirement (as such
term is defined in the Participant’s applicable Award Agreement); or (iii) upon a Change in Control. Notwithstanding
the foregoing, the Committee may, in its sole discretion, grant Awards with more favorable vesting provisions than set
forth in this Section 7.2, provided that the shares of Common Stock subject to such Awards shall be Exempt Shares.
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ARTICLE 8
EXERCISE OR CONVERSION OF INCENTIVE
8.1
In General. A vested Incentive may be exercised or converted, during its Award Period, subject to
limitations and restrictions set forth in the Award Agreement.
8.2
Securities Law and Exchange Restrictions. In no event may an Incentive be exercised or shares of
Common Stock issued pursuant to an Award if a necessary listing or quotation of the shares of Common Stock on a
stock exchange or inter-dealer quotation system or any registration under state or federal securities laws required under
the circumstances has not been accomplished.
8.3
Exercise of Stock Option.
(a)
In General. If a Stock Option is exercisable prior to the time it is vested, the Common Stock
obtained on the exercise of the Stock Option shall be Restricted Stock which is subject to the applicable
provisions of the Plan and the Award Agreement. If the Committee imposes conditions upon exercise, then
subsequent to the Date of Grant, the Committee may, in its sole discretion, accelerate the date on which all or
any portion of the Stock Option may be exercised. No Stock Option may be exercised for a fractional share
of Common Stock. The granting of a Stock Option shall impose no obligation upon the Participant to exercise
that Stock Option.
(b)
Notice and Payment. Subject to such administrative regulations as the Committee may from
time to time adopt, a Stock Option may be exercised by the delivery of written notice to the Committee setting
forth the number of shares of Common Stock with respect to which the Award is to be exercised (the “Exercise
Notice”) and the date of exercise thereof (the “Exercise Date”), and with respect to any Stock Option shall
be the date that the Participant has delivered both the Exercise Notice and consideration to the Company with
a value equal to the total Option Price of the shares to be purchased (plus any employment tax withholding or
other tax payment due with respect to such Award), payable as provided in the Award Agreement, which may
provide for payment in any one or more of the following ways: (i) in cash; (ii) by wire transfer or check
acceptable to the Company; (iii) if permitted by the Committee, having the Company withhold shares of
Common Stock that would otherwise be issued on exercise of the Stock Option that have an aggregate Fair
Market Value equal to the aggregate Option Price of the shares being purchased under the Stock Option; (iv)
if permitted by the Committee, tendering (either actually or, so long as the shares are registered under Section
12(b) or 12(g) of the Exchange Act, by attestation) shares of Common Stock owned by the Participant that
have an aggregate Fair Market Value equal to the aggregate Option Price of the shares being purchased under
the Stock Option; (v) unless the Committee determines otherwise and so long as the shares are registered under
Section 12(b) or 12(g) of the Exchange Act, and to the extent permitted by law, by delivery of a properly
executed Exercise Notice, together with irrevocable instructions to a brokerage firm designated or approved
by the Company to promptly deliver to the Company the amount of proceeds to pay the aggregate Option
Price; or (vi) such other consideration as the Committee may permit, in its sole discretion. In the event that
shares of Restricted Stock are tendered as consideration for the exercise of a Stock Option, a number of shares
of Common Stock issued upon the exercise of the Stock Option equal to the number of shares of Restricted
Stock used as consideration therefor shall be subject to the same restrictions and provisions as the Restricted
Stock so tendered. If the Participant fails to deliver the consideration described in this Section 8.3(b) within
three (3) business days of the date of the Exercise Notice, then the Exercise Notice shall be null and void and
the Company will have no obligation to deliver any shares of Common Stock to the Participant in connection
with such Exercise Notice.
(c)
Issuance of Certificate. Except as otherwise provided in Section 6.4 hereof (with respect to
shares of Restricted Stock) or in the applicable Award Agreement, upon payment of all amounts due from the
Participant, the Company shall cause the Common Stock then being purchased to be registered in the
Participant’s name (or the person exercising the Participant’s Stock Option in the event of his or her death),
but shall not issue certificates for the Common Stock unless the Participant or such other person requests
delivery of the certificates for the Common Stock, in writing in accordance with the procedures established
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by the Committee. The Company shall deliver certificates to the Participant (or the person exercising the
Participant’s Stock Option in the event of his or her death) as soon as administratively practicable following
the Company’s receipt of a written request from the Participant or such other person for delivery of the
certificates. Notwithstanding the forgoing, if the Participant has exercised an Incentive Stock Option, the
Company may at its option retain physical possession of the certificate evidencing the shares acquired upon
exercise until the expiration of the holding periods described in Section 422(a)(1) of the Code. Any obligation
of the Company to deliver shares of Common Stock shall, however, be subject to the condition that, if at any
time the Committee shall determine in its discretion that the listing, registration, or qualification of the Stock
Option or the Common Stock upon any securities exchange or inter-dealer quotation system or under any state
or federal law, or the consent or approval of any governmental regulatory body, is necessary as a condition of,
or in connection with, the Stock Option or the issuance or purchase of shares of Common Stock thereunder,
the Stock Option may not be exercised in whole or in part unless such listing, registration, qualification,
consent, or approval shall have been effected or obtained free of any conditions not reasonably acceptable to
the Committee.
(d)
Failure to Pay. Except as may otherwise be provided in an Award Agreement, if the Participant
fails to pay for any of the Common Stock specified in such notice or fails to accept delivery thereof, that
portion of the Participant’s Stock Option and right to purchase such Common Stock may be forfeited by the
Participant.
8.4
SARs. Subject to the conditions of this Section 8.4 and such administrative regulations as the
Committee may from time to time adopt, a SAR may be exercised by the delivery of an Exercise Notice to the Committee
setting forth the number of shares of Common Stock with respect to which the SAR is to be exercised and the Exercise
Date thereof. Subject to the terms of the Award Agreement and only if permissible under Section 409A of the Code
and the regulations or other guidance issued thereunder (or, if not so permissible, at such time as permitted by Section
409A of the Code and the regulations or other guidance issued thereunder), the Participant shall receive from the
Company in exchange therefor in the discretion of the Committee, and subject to the terms of the Award Agreement:
(a)
cash in an amount equal to the excess (if any) of the Fair Market Value (as of the Exercise
Date, or if provided in the Award Agreement, conversion, of the SAR) per share of Common Stock over the
SAR Price per share specified in such SAR, multiplied by the total number of shares of Common Stock of the
SAR being surrendered;
(b)
that number of shares of Common Stock having an aggregate Fair Market Value (as of the
Exercise Date, or if provided in the Award Agreement, conversion, of the SAR) equal to the amount of cash
otherwise payable to the Participant, with a cash settlement to be made for any fractional share interests; or
(c)
with cash.
the Company may settle such obligation in part with shares of Common Stock and in part
The distribution of any cash or Common Stock pursuant to the foregoing sentence shall be made at such time
as set forth in the Award Agreement.
8.5
Disqualifying Disposition of Incentive Stock Option. If shares of Common Stock acquired upon
exercise of an Incentive Stock Option are disposed of by a Participant prior to the expiration of either two (2) years
from the Date of Grant of such Stock Option or one (1) year from the transfer of shares of Common Stock to the
Participant pursuant to the exercise of such Stock Option, or in any other disqualifying disposition within the meaning
of Section 422 of the Code, such Participant shall notify the Company in writing of the date and terms of such disposition.
A disqualifying disposition by a Participant shall not affect the status of any other Stock Option granted under the Plan
as an Incentive Stock Option within the meaning of Section 422 of the Code.
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ARTICLE 9
AMENDMENT OR DISCONTINUANCE
Subject to the limitations set forth in this Article 9, the Board may at any time and from time to time, without
the consent of the Participants, alter, amend, revise, suspend, or discontinue the Plan in whole or in part; provided,
however, that no amendment for which stockholder approval is required either (i) by any securities exchange or inter-
dealer quotation system on which the Common Stock is listed or traded or (ii) in order for the Plan and Incentives
awarded under the Plan to continue to comply with Sections 421 and 422 of the Code, including any successors to
such Sections, or other Applicable Law, shall be effective unless such amendment shall be approved by the requisite
vote of the stockholders of the Company entitled to vote thereon. Any such amendment shall, to the extent deemed
necessary or advisable by the Committee, be applicable to any outstanding Incentives theretofore granted under the
Plan, notwithstanding any contrary provisions contained in any Award Agreement. In the event of any such amendment
to the Plan, the holder of any Incentive outstanding under the Plan shall, upon request of the Committee and as a
condition to the exercisability thereof, execute a conforming amendment in the form prescribed by the Committee to
any Award Agreement relating thereto. Notwithstanding anything contained in this Plan to the contrary, unless required
by law, no action contemplated or permitted by this Article 9 shall adversely affect any rights of Participants or
obligations of the Company to Participants with respect to any Incentive theretofore granted under the Plan without
the consent of the affected Participant.
ARTICLE 10
TERM
The Plan shall be effective from the Effective Date. Unless sooner terminated by action of the Board, the Plan
will terminate on the tenth anniversary of the Effective Date, but Incentives granted before that date will continue to
be effective in accordance with their terms and conditions.
ARTICLE 11
CAPITAL ADJUSTMENTS
In the event that any dividend or other distribution (whether in the form of cash, Common Stock, other securities,
or other property), recapitalization, stock split, reverse stock split, rights offering, reorganization, merger, consolidation,
split-up, spin-off, split-off, combination, subdivision, repurchase, or exchange of Common Stock or other securities
of the Company, issuance of warrants or other rights to purchase Common Stock or other securities of the Company,
or other similar corporate transaction or event affects the fair value of an Award, then the Committee shall adjust any
or all of the following so that the fair value of the Award immediately after the transaction or event is equal to the fair
value of the Award immediately prior to the transaction or event (i) the number of shares and type of Common Stock
(or the securities or property) which thereafter may be made the subject of Awards, (ii) the number of shares and type
of Common Stock (or other securities or property) subject to outstanding Awards, (iii) the Option Price of each
outstanding Award, (iv) the amount, if any, the Company pays for forfeited shares of Common Stock in accordance
with Section 6.4, and (v) the number of or SAR Price of shares of Common Stock then subject to outstanding SARs
previously granted and unexercised under the Plan, to the end that the same proportion of the Company’s issued and
outstanding shares of Common Stock in each instance shall remain subject to exercise at the same aggregate SAR
Price; provided however, that the number of shares of Common Stock (or other securities or property) subject to any
Award shall always be a whole number. Notwithstanding the foregoing, no such adjustment shall be made or authorized
to the extent that such adjustment would cause the Plan or any Stock Option to violate Section 422 of the Code or
Section 409A of the Code. Such adjustments shall be made in accordance with the rules of any securities exchange,
stock market, or stock quotation system to which the Company is subject.
Upon the occurrence of any such adjustment, the Company shall provide notice to each affected Participant
of its computation of such adjustment which shall be conclusive and shall be binding upon each such Participant.
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ARTICLE 12
RECAPITALIZATION, MERGER AND CONSOLIDATION
12.1 No Effect on Company’s Authority. The existence of this Plan and Incentives granted hereunder
shall not affect in any way the right or power of the Company or its stockholders to make or authorize any or all
adjustments, recapitalizations, reorganizations, or other changes in the Company’s capital structure and its business,
or any Change in Control, or any merger or consolidation of the Company, or any issuance of bonds, debentures,
preferred or preference stocks ranking prior to or otherwise affecting the Common Stock or the rights thereof (or any
rights, options, or warrants to purchase same), or the dissolution or liquidation of the Company, or any sale or transfer
of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or
otherwise.
12.2 Conversion of Incentives Where Company Survives. Subject to any required action by the
stockholders and except as otherwise provided by Section 12.4 hereof or as may be required to comply with Section
409A of the Code and the regulations or other guidance issued thereunder, if the Company shall be the surviving or
resulting corporation in any merger, consolidation or share exchange, any Incentive granted hereunder shall pertain to
and apply to the securities or rights (including cash, property, or assets) to which a holder of the number of shares of
Common Stock subject to the Incentive would have been entitled.
12.3
Exchange of Incentives Where Company Does Not Survive. Except as otherwise provided by
Section 12.4 hereof or as may be required to comply with Section 409A of the Code and the regulations or other
guidance issued thereunder, in the event of any merger, consolidation or share exchange pursuant to which the Company
is not the Successor Company, there shall be substituted for each share of Common Stock subject to the unexercised
portions of outstanding Incentives, that number of shares of each class of stock or other securities or that amount of
cash, property, or assets of the surviving, resulting or consolidated company which were distributed or distributable
to the stockholders of the Company in respect to each share of Common Stock held by them, such outstanding Incentives
to be thereafter exercisable for such stock, securities, cash, or property in accordance with their terms.
12.4 Cancellation of Awards. Notwithstanding the provisions of Sections 12.2 and 12.3 hereof, and
except as may be required to comply with Section 409A of the Code and the regulations or other guidance issued
thereunder, in the event a Successor Company does not agree to convert, assume, substitute for or replace the Awards,
then all such Awards granted hereunder may be canceled by the Company, in its sole discretion, as of the effective
date of any Change in Control, any issuance of bonds, debentures, preferred or preference stocks ranking prior to or
otherwise affecting the Common Stock or the rights thereof (or any rights, options, or warrants to purchase same), or
of any dissolution or liquidation of the Company, by either:
(a)
giving notice to each holder thereof or his personal representative of its intention to cancel
those Awards for which the issuance of shares of Common Stock involved payment by the Participant for such
shares, and permitting the purchase during the thirty (30) day period next preceding such effective date of any
or all of the shares of Common Stock subject to such outstanding Awards , including in the Board’s discretion
some or all of the shares as to which such Awards would not otherwise be vested and exercisable; or
(b)
in the case of Awards that are either (i) settled only in shares of Common Stock, or (ii) at the
election of the Participant, settled in shares of Common Stock, paying the holder thereof an amount equal to
a reasonable estimate of the difference between the net amount per share payable in such transaction or as a
result of such transaction, and the price per share of such Award to be paid by the Participant (hereinafter the
“Spread”), multiplied by the number of shares subject to the Award. In cases where the shares constitute, or
would after exercise, constitute Restricted Stock, the Company, in its discretion, may include some or all of
those shares in the calculation of the amount payable hereunder. In estimating the Spread, appropriate
adjustments to give effect to the existence of the Awards shall be made, such as deeming the Awards to have
been exercised, with the Company receiving the exercise price payable thereunder, and treating the shares
receivable upon exercise of the Awards as being outstanding in determining the net amount per share. In cases
where the proposed transaction consists of the acquisition of assets of the Company, the net amount per share
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shall be calculated on the basis of the net amount receivable with respect to shares of Common Stock upon a
distribution and liquidation by the Company after giving effect to expenses and charges, including but not
limited to taxes, payable by the Company before such liquidation could be completed.
(c)
be treated similarly.
For the avoidance of doubt, nothing in this Section 12.4 requires all outstanding Awards to
An Award that by its terms would be fully vested or exercisable upon a Change in Control will be considered
vested or exercisable for purposes of Section 12.4(a) hereof.
ARTICLE 13
LIQUIDATION OR DISSOLUTION
Subject to Section 12.4 hereof, in case the Company shall, at any time while any Incentive under this Plan
shall be in force and remain unexpired, (i) sell all or substantially all of its property, or (ii) dissolve, liquidate, or wind
up its affairs, then each Participant shall be entitled to receive, in lieu of each share of Common Stock of the Company
which such Participant would have been entitled to receive under the Incentive, the same kind and amount of any
securities or assets as may be issuable, distributable, or payable upon any such sale, dissolution, liquidation, or winding
up with respect to each share of Common Stock of the Company. If the Company shall, at any time prior to the
expiration of any Incentive, make any partial distribution of its assets, in the nature of a partial liquidation, whether
payable in cash or in kind (but excluding the distribution of a cash dividend payable out of earned surplus and designated
as such) and an adjustment is determined by the Committee to be appropriate to prevent the dilution of the benefits or
potential benefits intended to be made available under the Plan, then the Committee shall, in such manner as it may
deem equitable, make such adjustment in accordance with the provisions of Article 11 hereof.
ARTICLE 14
INCENTIVES IN SUBSTITUTION FOR
INCENTIVES GRANTED BY OTHER ENTITIES
Incentives may be granted under the Plan from time to time in substitution for similar instruments held by
employees, independent contractors or directors of a corporation, partnership, or limited liability company who become
or are about to become Employees, Contractors or Outside Directors of the Company or any Related Company as a
result of a merger or consolidation of the employing corporation with the Company, the acquisition by the Company
of equity of the employing entity, or any other similar transaction pursuant to which the Company becomes the successor
employer. The terms and conditions of the substitute Incentives so granted may vary from the terms and conditions
set forth in this Plan to such extent as the Committee at the time of grant may deem appropriate to conform, in whole
or in part, to the provisions of the incentives in substitution for which they are granted.
ARTICLE 15
MISCELLANEOUS PROVISIONS
15.1
Investment Intent. The Company may require that there be presented to and filed with it by any
Participant under the Plan, such evidence as it may deem necessary to establish that the Incentives granted or the shares
of Common Stock to be purchased or transferred are being acquired for investment and not with a view to their
distribution.
15.2 No Right to Continued Employment. Neither the Plan nor any Incentive granted under the Plan
shall confer upon any Participant any right with respect to continuance of employment by the Company or any Related
Company.
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15.3
Indemnification of Board and Committee. No member of the Board or the Committee, nor any
officer or Employee of the Company acting on behalf of the Board or the Committee, shall be personally liable for
any action, determination, or interpretation taken or made in good faith with respect to the Plan, and all members of
the Board and the Committee, each officer of the Company, and each Employee of the Company acting on behalf of
the Board or the Committee shall, to the extent permitted by law, be fully indemnified and protected by the Company
in respect of any such action, determination, or interpretation to the fullest extent provided by law. Except to the extent
required by any unwaiveable requirement under applicable law, no member of the Board or the Committee (and no
Related Company of the Company) shall have any duties or liabilities, including without limitation any fiduciary
duties, to any Participant (or any Person claiming by and through any Participant) as a result of this Plan, any Award
Agreement or any Claim arising hereunder and, to the fullest extent permitted under applicable law, each Participant
(as consideration for receiving and accepting an Award Agreement) irrevocably waives and releases any right or
opportunity such Participant might have to assert (or participate or cooperate in) any Claim against any member of
the Board or the Committee and any Related Company of the Company arising out of this Plan.
15.4
Effect of the Plan. Neither the adoption of this Plan nor any action of the Board or the Committee
shall be deemed to give any person any right to be granted an Award or any other rights except as may be evidenced
by an Award Agreement, or any amendment thereto, duly authorized by the Committee and executed on behalf of the
Company, and then only to the extent and upon the terms and conditions expressly set forth therein.
15.5 Compliance with Other Laws and Regulations. Notwithstanding anything contained herein to the
contrary, the Company shall not be required to sell or issue shares of Common Stock under any Incentive if the issuance
thereof would constitute a violation by the Participant or the Company of any provisions of any law or regulation of
any governmental authority or any national securities exchange or inter-dealer quotation system or other forum in
which shares of Common Stock are quoted or traded (including, without limitation, Section 16 of the Exchange Act);
and, as a condition of any sale or issuance of shares of Common Stock under an Incentive, the Committee may require
such agreements or undertakings, if any, as the Committee may deem necessary or advisable to assure compliance
with any such law or regulation. The Plan, the grant and exercise of Incentives hereunder, and the obligation of the
Company to sell and deliver shares of Common Stock, shall be subject to all applicable federal and state laws, rules
and regulations and to such approvals by any government or regulatory agency as may be required.
15.6
Foreign Participation. To assure the viability of Awards granted to Participants employed in foreign
countries, the Committee may provide for such special terms as it may consider necessary or appropriate to
accommodate differences in local law, tax policy or custom. Moreover, the Committee may approve such supplements
to, or amendments, restatements or alternative versions of, this Plan as it determines is necessary or appropriate for
such purposes. Any such amendment, restatement or alternative versions that the Committee approves for purposes
of using this Plan in a foreign country will not affect the terms of this Plan for any other country.
15.7
Tax Requirements. The Company or, if applicable, any Related Company (for purposes of this
Section 15.7, the term “Company” shall be deemed to include any applicable Related Company), shall have the right
to deduct from all amounts paid in cash or other form in connection with the Plan, any federal, state, local, or other
taxes required by law to be withheld in connection with an Award granted under this Plan. The Company may, in its
sole discretion, also require the Participant receiving shares of Common Stock issued under the Plan to pay the Company
the amount of any taxes that the Company is required to withhold in connection with the Participant’s income arising
with respect to the Award. Such payments shall be required to be made when requested by the Company and may be
required to be made prior to the delivery of any certificate representing shares of Common Stock. Such payment may
be made by (i) paying cash to the Company; (ii) having the Company withhold an amount from any cash amounts
otherwise due or to become due from the Company to the Participant; (iii) having the Company withhold a number
of shares of Common Stock that would otherwise be issued to the Participant having a Fair Market Value equal to the
tax withholding obligations; (iv) surrendering a number of shares of Common Stock the Participant already owns
having a Fair Market Value equal to the tax withholding obligations; or (v) any combination of (i), (ii), (iii) or (iv).
The value of the shares so withheld or tendered may not exceed the Company’s minimum required tax withholding
rate. The Committee may in the Award Agreement impose any additional tax requirements or provisions that the
Committee deems necessary or desirable.
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15.8 Assignability. Incentive Stock Options may not be transferred, assigned, pledged, hypothecated or
otherwise conveyed or encumbered other than by will or the laws of descent and distribution and may be exercised
during the lifetime of the Participant only by the Participant or the Participant’s legally authorized representative, and
each Award Agreement in respect of an Incentive Stock Option shall so provide. The designation by a Participant of
a beneficiary will not constitute a transfer of the Stock Option. The Committee may waive or modify any limitation
contained in the preceding sentences of this Section 15.8 that is not required for compliance with Section 422 of the
Code.
Except as otherwise provided herein, Awards may not be transferred, assigned, pledged, hypothecated or
otherwise conveyed or encumbered other than by will or the laws of descent and distribution. Notwithstanding the
foregoing, the Committee may, in its discretion, authorize all or a portion of a Nonqualified Stock Option or SAR to
be granted to a Participant on terms which permit transfer by such Participant to (i) the spouse (or former spouse),
children or grandchildren of the Participant (“Immediate Family Members”), (ii) a trust or trusts for the exclusive
benefit of such Immediate Family Members, (iii) a partnership in which the only partners are (1) such Immediate
Family Members and/or (2) entities which are controlled by the Participant and/or Immediate Family Members, (iv)
an entity exempt from federal income tax pursuant to Section 501(c)(3) of the Code or any successor provision, or (v)
a split interest trust or pooled income fund described in Section 2522(c)(2) of the Code or any successor provision,
provided that (x) there shall be no consideration for any such transfer, (y) the Award Agreement pursuant to which
such Nonqualified Stock Option or SAR is granted must be approved by the Committee and must expressly provide
for transferability in a manner consistent with this Section, and (z) subsequent transfers of transferred Nonqualified
Stock Options or SARs shall be prohibited except those by will or the laws of descent and distribution.
Following any transfer, any such Nonqualified Stock Option and SAR shall continue to be subject to the same
terms and conditions as were applicable immediately prior to transfer, provided that for purposes of Articles 8, 9, 11,
13 and 15 hereof the term “Participant” shall be deemed to include the transferee. The events of Termination of
Service shall continue to be applied with respect to the original Participant, following which the Nonqualified Stock
Options and SARs shall be exercisable or convertible by the transferee only to the extent and for the periods specified
in the Award Agreement. The Committee and the Company shall have no obligation to inform any transferee of a
Nonqualified Stock Option or SAR of any expiration, termination, lapse or acceleration of such Stock Option or SAR.
The Company shall have no obligation to register with any federal or state securities commission or agency any
Common Stock issuable or issued under a Nonqualified Stock Option or SAR that has been transferred by a Participant
under this Section 15.8.
15.9 Use of Proceeds. Proceeds from the sale of shares of Common Stock pursuant to Incentives granted
under this Plan shall constitute general funds of the Company.
15.10 Legend. Each certificate representing shares of Restricted Stock issued to a Participant shall bear the
following legend, or a similar legend deemed by the Company to constitute an appropriate notice of the provisions
hereof (any such certificate not having such legend shall be surrendered upon demand by the Company and so endorsed):
On the face of the certificate:
“TRANSFER OF THIS STOCK IS RESTRICTED IN ACCORDANCE
WITH CONDITIONS PRINTED ON THE REVERSE OF THIS
CERTIFICATE.”
On the reverse:
“THE SHARES OF STOCK EVIDENCED BY THIS CERTIFICATE ARE
SUBJECT TO AND TRANSFERABLE ONLY IN ACCORDANCE WITH
THAT CERTAIN BLUCORA, INC. 2018 LONG-TERM INCENTIVE
PLAN, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE
OF THE COMPANY IN IRVING, TEXAS. NO TRANSFER OR PLEDGE
OF THE SHARES EVIDENCED HEREBY MAY BE MADE EXCEPT IN
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ACCORDANCE WITH AND SUBJECT TO THE PROVISIONS OF SAID
PLAN. BY ACCEPTANCE OF THIS CERTIFICATE, ANY HOLDER,
TRANSFEREE OR PLEDGEE HEREOF AGREES TO BE BOUND BY
ALL OF THE PROVISIONS OF SAID PLAN.”
The following legend shall be inserted on a certificate evidencing Common Stock issued under the Plan if the
shares were not issued in a transaction registered under the applicable federal and state securities laws:
“SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE
BEEN ACQUIRED BY THE HOLDER FOR INVESTMENT AND NOT
FOR RESALE, TRANSFER OR DISTRIBUTION, HAVE BEEN ISSUED
PURSUANT TO EXEMPTIONS FROM THE REGISTRATION
REQUIREMENTS OF APPLICABLE STATE AND FEDERAL
SECURITIES LAWS, AND MAY NOT BE OFFERED FOR SALE, SOLD
OR TRANSFERRED OTHER THAN PURSUANT TO EFFECTIVE
REGISTRATION UNDER SUCH LAWS, OR IN TRANSACTIONS
OTHERWISE IN COMPLIANCE WITH SUCH LAWS, AND UPON
EVIDENCE SATISFACTORY TO THE COMPANY OF COMPLIANCE
WITH SUCH LAWS, AS TO WHICH THE COMPANY MAY RELY UPON
AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY.”
15.11 Governing Law. The Plan shall be governed by, construed, and enforced in accordance with the laws
of the State of Delaware (excluding any conflict of laws, rule or principle of Delaware law that might refer the
governance, construction, or interpretation of this Plan to the laws of another state). A Participant’s sole remedy for
any Claim shall be against the Company, and no Participant shall have any claim or right of any nature against any
Related Company of the Company or any stockholder or existing or former director, officer or Employee of the
Company or any Related Company of the Company. The individuals and entities described above in this Section 15.11
(other than the Company) shall be third-party beneficiaries of this Plan for purposes of enforcing the terms of this
Section 15.11.
A copy of this Plan shall be kept on file in the principal office of the Company in Irving, Texas.
***************
A-22
IN WITNESS WHEREOF, the Company has caused this instrument to be executed as of April 6, 2018, by its
President and Chief Executive Officer pursuant to prior action taken by the Board.
BLUCORA, INC.
/s/ John S. Clendening
By:
Name: John S. Clendening
Title:
President and Chief Executive Officer
A-23
Appendix B
Proposed Certificate of Amendment
to the Restated Certificate of Incorporation of Blucora, Inc.
The text of the proposed amendment is marked to reflect the proposed changes.
The text of the proposed amendment is marked to reflect the proposed changes. Additions to the proposed amendment
are indicated by bolded underlined text and deletions are indicated by strike-outs.
Blucora, Inc., a corporation organized and existing under the laws of the State of Delaware (the “Corporation”), does
hereby certify that:
1.
Article 5 of the Restated Certificate of Incorporation of the Corporation is amended to read in its entirety as
follows:
The Board shall be composed of not less than 5 6 nor more than 9 15 Directors, the specific number to be set
by resolution of the Board, provided that the Board may be less than 5 6 until vacancies are filled. No decrease in the
number of Directors shall have the effect of shortening the term of any incumbent Director.
Commencing with the 2018 annual election of Directors, at each annual election of Directors, the successors
to the class of Directors whose term expires at that time shall be elected to hold office for a term of one year. Commencing
with the 2020 annual meeting of stockholders, the division of the Board of Directors into three classes shall terminate
and all Directors shall be of one class elected annually. Notwithstanding any of the foregoing provisions of this Article
5, Directors shall serve until their successors are elected and qualified or until their earlier death, resignation or removal
from office or until there is a decrease in the number of Directors. Directors need not be stockholders of the corporation
or residents of the State of Delaware and need not meet any other qualifications.
2.
The foregoing amendment to the Restated Certificate of Incorporation of the Corporation was duly adopted
in accordance with the provisions of Section 242 of the Delaware General Corporation Law.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment to be executed by its duly
authorized officer this ___ day of _________, 2018.
B-1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2017
OR
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
BLUCORA, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
91-1718107
(IRS Employer
Identification No.)
6333 State Hwy 161, 6th Floor, Irving, Texas 75038
(Address of principal executive offices) (Zip code)
Registrant’s telephone number, including area code:
(972) 870-6000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, par value $0.0001 per share
Name of each exchange on which registered
NASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act: None
(Title of Class)
Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
No
Indicate by check mark whether the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
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
No
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. Yes
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted 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 and post such files). Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and
will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or
emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in
Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
(Do not check if a smaller reporting company)
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 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 Act). Yes
The aggregate market value of the Common Stock held by non-affiliates of the registrant outstanding as of June 30, 2017, based upon the closing price
of Common Stock on June 30, 2017 as reported on the NASDAQ Global Select Market, was $937.8 million. Common Stock held by each officer and director
(or his or her affiliate) has been excluded because such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a
conclusive determination for other purposes.
No
As of February 21, 2018, 46,710,439 shares of the registrant’s Common Stock were outstanding.
Part III incorporates certain information by reference from the definitive proxy statement to be filed by the registrant in connection with the
DOCUMENTS INCORPORATED BY REFERENCE
2018 Annual Meeting of Stockholders (the “Proxy Statement”).
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Part I
TABLE OF CONTENTS
Business
Item 1.
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Properties
Legal Proceedings
Item 3.
Item 4. Mine Safety Disclosures
Selected Financial Data
Part II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9.
Item 9A. Controls and Procedures
Item 9B. Other Information
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Financial Statements and Supplementary Data
Part III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accounting Fees and Services
Part IV
Item 15. Exhibits, Financial Statement Schedules
Signatures
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This report 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 21E of the Securities Exchange Act of
1934, as amended. Words such as “anticipate,” “believe,” “plan,” “expect,” “future,” “intend,” “may,” “will,” “should,”
“estimate,” “predict,” “potential,” “continue,” 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:
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our ability to effectively implement our future business plans and growth strategy, including our ability to achieve the
anticipated benefits of our Strategic Transformation (as defined below);
our ability to effectively compete within our industry;
our ability to attract and retain customers, as well as our ability to provide strong customer service;
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 customers and the impact of the financial markets on
our customers’ portfolios;
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 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 comply with regulations applicable to the wealth management and tax preparation industries, including
increased costs associated with new or changing regulations;
our ability to successfully transition our wealth management business to a new clearing platform and our expectations
concerning the benefits that may be derived therefrom;
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 party partners, providers, suppliers, vendors, distributors,
contractors, financial institutions and licensing partners;
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.
Forward-looking statements are subject to known and unknown risks, uncertainties, and other factors 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, those identified under
Item 1A, "Risk Factors," and elsewhere in this report. You should not rely on forward-looking statements, which speak only as
of the date of this Annual Report on Form 10-K. We do not undertake any obligation to update any forward-looking statement
to reflect new information, events, or circumstances after the date of this Annual Report on Form 10-K or to reflect the
occurrence of unanticipated events, except as required by law.
PART I
3
ITEM 1. Business
General Overview
Blucora, Inc. (referred to throughout this report as “Blucora,” the "Company", "we," "us," or "our") is a Delaware
corporation that was founded in 1996, and, through organic growth and strategic acquisitions, we have become a leading
provider of technology-enabled financial solutions to consumers, small business owners, and tax professionals. Our products
and services in wealth management and tax preparation that we offer through HDV Holdings, Inc. and its subsidiaries (“HD
Vest”) and TaxAct, Inc. and its subsidiary (“TaxAct”), respectively, help consumers to manage their financial lives.
HD Vest provides financial advisors, who affiliate with HD Vest’s registered broker-dealer, investment adviser and/or
insurance subsidiaries as independent contractors, an integrated, open platform that includes a broad variety of products offered
through our brokerage, investment advisory, and insurance services to assist in making each financial advisor a financial
service center for his/her clients. We regularly review the commissions and fees we charge for these products and services in
light of the evolving regulatory and competitive environment and changes in client preferences and needs. We do not offer any
proprietary products. As of December 31, 2017, approximately 4,000 advisors with branch offices in all 50 states utilized our
HD Vest platform and supported approximately $44.0 billion of assets for almost 350,000 clients. HD Vest generates revenue
primarily through securities and insurance commissions, quarterly investment advisory fees based on assets under management,
and other fees.
TaxAct provides affordable digital do-it-yourself (“DDIY”) tax preparation solutions for consumers and small business
owners, and preparation software for tax professionals. During the year ended December 31, 2017, TaxAct powered
approximately 4,500,000 consumer e-files and another 1,800,000 e-files through the 21,000 tax professionals who used TaxAct
to prepare and file their taxes or those of their clients. TaxAct generates revenue primarily through its online service at
www.TaxAct.com. The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, various state
jurisdictions, and Canada.
Our common stock is listed on the NASDAQ Global Select Market under the symbol “BCOR.”
Our History
Blucora began in 1996 under the name InfoSpace, Inc. (“InfoSpace”). Over the next two decades, InfoSpace operated a
number of digital businesses in search, directory, online commerce, media, and mobile infrastructure markets, with operations
since 2008 focusing on internet search services and content (our “Search and Content” business).
In January 2012, InfoSpace acquired TaxAct, a leading provider of digital tax preparation solutions for consumers, small
business owners, and tax professionals (our “Tax Preparation” business). In connection with this acquisition, InfoSpace
changed its name to Blucora, Inc. in June 2012.
In August 2013, Blucora acquired Monoprice, Inc. (“Monoprice”), an e-commerce company that sold self-branded
electronics and accessories to both consumers and businesses (our “E-Commerce” business).
In July 2015, Blucora acquired SimpleTax Software Inc. (“SimpleTax”), a provider of online tax preparation services for
individuals in Canada.
For further detail on these acquisitions, see "Note 3: Business Combinations" of the Notes to Consolidated Financial
Statements in Part II Item 8 of this report.
On October 14, 2015, we announced our plans to continue to operate our TaxAct subsidiary and to acquire HD Vest in
order to focus on the technology-enabled financial solutions market (the “Strategic Transformation”). The acquisition of HD
Vest closed on December 31, 2015. Through its registered broker-dealer, registered investment adviser, and insurance agency
subsidiaries, HD Vest operates the largest U.S. tax-professional-oriented independent broker-dealer, providing wealth
management solutions to financial advisors and their clients nationwide (our “Wealth Management” business). HDV
Holdings, Inc. is the parent company of the Wealth Management business and owns all outstanding shares of HD Vest, Inc.,
which serves as a holding company for our various financial services subsidiaries. Those subsidiaries include HD Vest
Investment Securities, Inc. (a registered broker-dealer), HD Vest Advisory Services, Inc. (a registered investment adviser), and
HD Vest Insurance Agency, LLC (three insurance agencies domiciled in Texas, Massachusetts, and Montana). The Tax
Preparation business consists of the operations of TaxAct, Inc. and its subsidiary ("TaxAct") and provides digital tax
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preparation solutions for consumers, small business owners, and tax professionals through its website www.TaxAct.com
(collectively referred to as the "Tax Preparation business" or the "Tax Preparation segment").
As part of the October 14, 2015 announcement, we also stated our plans to divest the Search and Content and E-
Commerce businesses. We completed both divestitures in 2016. Specifically, on August 9, 2016, we closed the sale of the
Search and Content business to OpenMail LLC (“OpenMail”). On November 17, 2016, we closed the sale of the E-Commerce
business to YFC-Boneagle Electric Co., Ltd (“YFC”). The results of operations of the Search and Content and E-Commerce
businesses have been classified as discontinued operations for all periods presented in this report. See "Note 4: Discontinued
Operations" of the Notes to Consolidated Financial Statements in Part II Item 8 of this report for additional information.
On October 27, 2016, as part of the Strategic Transformation and “One Company” operating model, Blucora announced
plans to relocate its corporate headquarters by June 2017 from Bellevue, Washington to Irving, Texas. The actions to relocate
the corporate headquarters were intended to drive efficiencies and improve operational effectiveness. See "Note 5:
Restructuring" of the Notes to Consolidated Financial Statements in Part II Item 8 of this report for additional information. The
restructuring is now substantially complete and it is expected to be completed by early 2018.
We have two reportable segments: the Wealth Management segment, which is comprised of the HD Vest business, and
the Tax Preparation segment, which is comprised of the TaxAct business. See "Note 2: Summary of Significant Accounting
Policies" of the Notes to Consolidated Financial Statements in Part II Item 8 of this report for additional information on the
Wealth Management and Tax Preparation businesses and their revenue. See "Note 13: Segment Information" of the Notes to
Consolidated Financial Statements in Part II Item 8 of this report for information regarding revenue, operating income, and
assets for our Wealth Management and Tax Preparation businesses.
Business Overview
Wealth Management Business
HD Vest was founded to help tax and accounting professionals integrate financial services into their practices. Unlike
traditional independent broker-dealers and/or investment advisers whose client relationships are limited to providing
investment advice, most HD Vest advisors have long-standing tax advisory relationships that anchor their wealth management
businesses. We believe that tax and accounting professionals, with their existing client relationships and in-depth knowledge of
their clients’ financial situations, have a competitive advantage and are better positioned than competitors to provide tailored
financial solutions that enable clients to meet their goals. HD Vest primarily recruits independent tax professionals with
established tax practices and offers specialized training and support, which allows them to join the HD Vest platform as
independent financial advisors. HD Vest has designed a learning management system for its advisors, branded VestU™, with
curriculum that introduces advisors to the investment business and helps them build their practices. The comprehensive
training curriculum is administered through numerous outlets, including an annual three-day national sales conference,
approximately 600 specialized local training events held annually, and on-demand learning paths.
HD Vest's business model provides an open-architecture investment platform and technology tools to help financial
advisors identify investment opportunities for their clients, while the long-standing tax advisory relationships provide a large
client base of possible investment clients. This results in an experienced and stable network of financial advisors, who have
multiple revenue-generating options to diversify their earnings sources, and have access to HD Vest's innovative Mentor
program and Chapter meetings. HD Vest also has a highly experienced home office team that is focused on solutions tailored
to the advisor's practice. The home office team provides marketing, practice management, insurance and annuity, wealth
management, compliance, succession planning, and other support to our advisors.
Tax Preparation Business
TaxAct, a top-three provider of digital tax preparation solutions, based upon the number of e-files made in 2017, has
leveraged its strong brand, comprehensive suite of tax preparation solutions, and proven online lead generation capabilities to
enable the filing of more than 64 million federal consumer tax returns in the U.S. and Canada since 2000. TaxAct operates as
the value player in its market, with a mission to empower people to navigate the complexities of tax preparation with ease and
accuracy at a fair price.
TaxAct's offerings come with a price lock guarantee, whereby the price at the start of the tax return filing process is the
price when the return is filed, rather than pricing the offering at the time that the tax return is filed. We believe this price lock
guarantee ensures price transparency and differentiates TaxAct from its competitors. TaxAct also provides an accuracy
guarantee, where, if an error in our software results in a smaller refund or larger tax liability than the customer would receive
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using the same data with another tax preparation product, we will pay to the customer the difference in the refund or liability
(up to $100,000) and refund the applicable software fees the customer paid us. In addition to these core offerings, TaxAct
offers ancillary services such as refund payment transfer, audit defense, stored value cards, and retirement investment accounts
through HD Vest, and a marketplace for customers to take advantage of personalized tax and financial savings opportunities
through third party product providers. TaxAct has an established reputation that we believe is attractive to customers.
We had three offerings for consumers for tax year 2016, which is the basis for TaxAct's 2017 operating results:
• A "free" federal and state edition that handled simple returns;
• A "plus" offering that contained all of the basic offering features in addition to tools to maximize credits and
deductions, and enhanced reporting; and
• A "premium" offering that contained all of the plus offering features in addition to tools for self-employed
individuals to maximize credits and deductions.
For our offerings, state returns can be filed for free for free simple filers, or through the separately-sold state edition. We
also had an offering for small business owners.
TaxAct’s professional tax preparer software allows professional tax preparers to prepare and file individual and business
returns for their clients. TaxAct offers flexible pricing and packaging options that help tax professionals save money by paying
only for what they need. In addition, the professional tax preparer software includes valuable features that tax professionals
count on to maximize their efficiency and productivity, including the option of entering data directly into tax forms, utilizing
the question-and-answer interview method to enter data, or easily toggling between the two data entry methods.
Growth Strategy
Our evolving growth strategy for HD Vest and TaxAct includes participating in favorable industry trends and executing
growth strategies that we believe will result in customer and advisor retention and growth beyond that of the broader markets in
which we operate. Our approach is grounded on the belief that the best way to sustainably grow a business is to earn loyalty
based on continuously delivering ever-greater value to target customers and clients.
Favorable Industry Trends
• Wealth Management Industry Trends - We believe that HD Vest is and will be the beneficiary of several positive
industry trends, including growth of investable assets driven by baby boomers’ retirement accounts, a continued
migration to independent advisor channels, liquidity events and a continued shift toward household use of financial
advisors.
•
Tax Preparation Industry Trends - TaxAct participates in the consumer DDIY tax preparation solutions market,
which is the fastest growing segment in the tax preparation industry and is bolstered by a growing millennial
population that continues to adopt technology-enabled financial solutions that drive value and ease in their everyday
lives, and we believe that tax simplification will drive digital consumer growth.
Executing our Growth Strategies
• Brand Differentiation - A key objective of our strategy is to differentiate our HD Vest and TaxAct brands. It is
important that our advisors, their clients, and our customers clearly identify and connect with our brands for the
quality of products and services that we offer, as well as our values. In 2017, we took initial steps in this effort,
beginning in the tax season, and we expect to make additional investments over time. Additionally, we believe that
the synergies between HD Vest and TaxAct will provide additional brand differentiation opportunities and
strengthen our connection with our advisors, their clients, and our customers.
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Innovate Continuously - As emerging technology and market trends change the way people manage their financial
lives, our solutions also evolve. The retention and growth of our customer and advisor base are dependent, in part,
upon our ability to deliver technology-enabled financial solutions that optimize user experience and capitalize on
current technology, and provide innovations that integrate proven wealth management goals-based planning and
portfolio management technology with tax planning and preparation technology.
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• Offer a Comprehensive Product Suite - The products and services offered by HD Vest and TaxAct constitute a
comprehensive suite of financial solutions. We believe that continued expansion of financial solutions, whether
proprietary or third party, will be a source of growth for each business. In addition, the combination of HD Vest and
TaxAct provides meaningful cross-serving opportunities for both businesses, further contributing to customer and
advisor retention and growth.
• Continue to Provide Quality Customer Support, Education, and Training - A key element of our HD Vest business
model is the ongoing education and training of tax professionals, which enables them to become financial advisors
and effectively manage a growing wealth management practice. HD Vest provides these tax professionals with the
resources and support to build confidence and competence, enabling them to grow assets under administration. The
importance of quality customer support and education also flows through to our TaxAct business, where a seasoned
tax support team provides support and education to consumers and tax professionals.
Research and Development
Our wealth management and tax preparation services are delivered primarily via software and online platforms. Since
the markets for software and online technology are characterized by rapid technological change, shifting customer needs and
frequent new product introductions and enhancements, a continuous high level of investment is required to innovate and
quickly develop new products and services as well as enhance existing offerings. Our product development efforts are
becoming more important than ever as people and businesses are increasingly connected by technology and expect access to
services at any place or time. Our research and development expenses were $13.3 million in 2017, $13.7 million in 2016
(which includes research and development by the HD Vest business beginning on January 1, 2016), and $4.8 million in 2015.
Seasonality
Our Tax Preparation business is highly seasonal, with a significant portion of our annual revenue for such services 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
nature of that part of the business will continue in the foreseeable future.
Competition
We face intense competition in all markets in which our businesses operate. Many of our competitors or potential
competitors have substantially greater financial, technical, and marketing resources, larger customer bases, longer operating
histories, more developed infrastructures, greater brand recognition, better access to vendors, and more established
relationships. Our competitors may be able to adopt more aggressive pricing policies, develop and expand their product and
service offerings more rapidly, adapt to new or emerging technologies more quickly, take advantage of acquisitions and other
opportunities more readily, achieve greater economies of scale, and devote greater resources to the marketing and sale of their
products and services than we can. For our businesses to be successful, we must be competitive in the Wealth Management and
Tax Preparation markets, as described in more detail below.
Wealth Management Competition
The wealth management industry is a highly competitive global industry. We and our financial advisors compete directly
with a variety of financial institutions, including traditional wirehouses, independent broker-dealers, registered investment
advisers, asset managers, banks and insurance companies, and direct distributors such as 1st Global and Cetera Financial
Group, as well as larger broker-dealers such as Raymond James Financial. Mergers and acquisitions have resulted in
consolidation in the wealth management industry. As a result, many of our competitors may have greater financial resources,
broader and deeper distribution capabilities, and a more comprehensive offering of products and services. We and our financial
advisors compete directly with those companies for the provision of products and services to clients, as well as for retention
and hiring of financial advisors.
We believe that our competitive position in the wealth management industry is a function of our ability to enable our
advisors to offer investment guidance in the context of their clients' tax situations and more specifically to:
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offer high-quality portfolio investment options and competitive product pricing;
offer a differentiated value proposition (in terms of brand recognition, reputation, and financial advisor payouts) that
is sufficient to recruit and retain financial advisors;
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offer products that are attractive to financial advisors and their clients;
negotiate competitive compensation arrangements with third-parties, including vendors, suppliers, and product
sponsors;
develop and react to new technology, services, and regulation in the financial services industry; and
put in place a sufficient support and service network required to support our financial advisors and clients.
Tax Preparation Competition
Our TaxAct business operates in a very competitive marketplace. There are many competing software products and
online services. Intuit’s TurboTax and H&R Block's DDIY consumer products and services have a significant percentage of the
software and online service market. Our TaxAct 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,
and Jackson Hewitt, and it may also be subject to new market entrants who may take some of our market share. Finally, our
TaxAct business faces the risk that state or federal taxing agencies will offer software or systems to provide direct access for
individual filers that will reduce the need for TaxAct’s software and services.
We believe that our competitive position in the market for tax preparation software and services is a function of our
ability to:
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differentiate our brand versus those of competitors;
offer competitive pricing;
continue to offer high-quality, easy-to-use, and accessible software and services that are compelling to consumers;
• market the software and services in a cost effective way; and
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offer ancillary services that are attractive to users, including enhanced tax and wealth management services through
HD Vest.
Privacy and Security of Customer Information and Transactions
Our TaxAct business is subject to various federal, state and international laws and regulations and to financial institution
and healthcare provider requirements relating to the privacy and security of the personal information of customers and
employees. We are also subject to laws and regulations that apply to the Internet, behavioral tracking and advertising, mobile
applications and messaging, telemarketing, email activities, data hosting and retention, financial and health information, and
credit reporting. Additional laws in all of these areas are likely to be passed in the future, which could result in significant
limitations on or changes to the ways in which we can collect, use, host, store, or transmit the personal information and data of
our customers or employees, communicate with our customers, and deliver products and services, or may significantly increase
our compliance costs. As our business expands to new industry segments and new uses of data that are regulated for privacy
and security, or to countries outside the United States that have strict data protections laws, our compliance requirements and
costs will increase.
Through a privacy policy framework designed to be consistent with globally recognized privacy principles, we comply
with United States federal and other country guidelines and practices to help ensure that customers and employees are aware of,
and can control, how we use information about them. The TaxAct.com website and its online products have been certified by
TRUSTe, an independent organization that operates a website and online product privacy certification program representing
industry standard practices to address users’ and regulators’ concerns about online privacy. We also use privacy statements to
provide notice to customers of our privacy practices, as well as provide them the opportunity to furnish instructions with
respect to use of their personal information. We participate in industry groups whose purpose is to develop or shape industry
best practices, and to influence public policy for privacy and security.
To address security concerns, we use security safeguards to help protect the systems and the information customers give
to us from loss, misuse and unauthorized alteration. Whenever customers transmit sensitive information, such as credit card
information or tax return data, through one of our websites or products, we use industry standards to encrypt the data as it is
transmitted to us. We work to protect our systems from unauthorized internal or external access using numerous commercially
available computer security products as well as internally developed security procedures and practices.
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HD Vest’s subsidiaries are subject to privacy regulation under federal and state law, which has been, and will continue to
be, an area of focus for regulators.
Governmental Regulation
Blucora is a publicly traded company that is subject to Securities and Exchange Commission (“SEC”) and NASDAQ
Global Select Market rules and regulations regarding public disclosure, financial reporting, internal controls, and corporate
governance. The adoption of the Sarbanes-Oxley Act of 2002, as well as the implementation of the Dodd-Frank Wall Street
Reform and Consumer Protection Act (“Dodd-Frank Act”), have significantly expanded the nature and scope of these rules
and regulations. Our Wealth Management and Tax Preparation segments are subject to federal and state government
requirements, including regulations related to consumer protection, user privacy, security, pricing, taxation, intellectual
property, labor, advertising, broker-dealers, securities, investment advisers, asset management, insurance, listing standards, and
product and services quality.
Our Wealth Management segment is subject to additional financial industry regulations and supervision, including by the
SEC, the Financial Industry Regulatory Authority (“FINRA”), the Department of Labor (“DOL”), state securities and
insurance regulators, and other regulatory authorities. Our Wealth Management subsidiary HD Vest Investment Securities, Inc.
is a broker-dealer registered with the SEC, a member of FINRA, and a member of the Securities Investor Protection
Corporation and the Depository Trust & Clearing Corporation. Broker-dealers and their representatives are subject to rules and
regulations covering all aspects of the securities business, including sales and trading practices, use and safekeeping of clients’
funds and securities, capital adequacy, recordkeeping and reporting, the conduct of directors, officers, and employees, and
general anti-fraud provisions. Broker-dealers and their representatives are also regulated by state securities administrators in
those jurisdictions where they do business. Compliance with many of the rules and regulations applicable to us involves a
number of risks, because rules and regulations frequently change and are subject to varying interpretations, among other
reasons. Regulators make periodic examinations of our broker-dealer operations and review annual, monthly, and other reports
on our operations and financial condition. Violations of rules and regulations governing a broker-dealer’s actions could result
in censure, penalties and fines, the issuance of cease-and-desist orders, the restriction, suspension, or expulsion from the
securities industry of such broker-dealer, its representatives or its officers or employees, or other similar adverse consequences.
Our Wealth Management subsidiary, HD Vest Advisory Services, Inc. is registered with the SEC as an investment adviser
and is subject to the requirements of the Investment Advisers Act of 1940, as amended (the “Advisers Act”), and the regulations
promulgated thereunder. Such requirements relate to, among other things, fiduciary duties to clients, advisory fees, maintaining
an effective compliance program, solicitation arrangements, conflicts of interest, advertising, limitations on agency cross and
principal transactions between the advisor and advisory clients, recordkeeping and reporting requirements, disclosure
requirements, and general anti-fraud provisions. The SEC periodically examines our investment adviser operations and
reviews annual, monthly, and other reports on our operations and financial condition. The SEC is authorized to institute
proceedings and impose sanctions for violations of the Advisers Act and other federal securities laws, ranging from fines and
censure to termination of an investment adviser’s registration. Investment adviser representatives also are subject to certain
state securities laws and regulations. Failure to comply with the Advisers Act or other federal and state securities laws and
regulations could result in investigations, sanctions, profit disgorgement, fines, or other similar adverse consequences.
Our Wealth Management subsidiaries offer certain products and services subject to the Employee Retirement Income
Security Act of 1974, as amended (“ERISA”) and Section 4975 of the Internal Revenue Code (the “Code”), and to regulations
promulgated under ERISA or the Code, insofar as they provide services with respect to plan clients, or otherwise deal with plan
clients that are subject to ERISA or the Code. ERISA imposes certain duties on persons who are “fiduciaries” (as defined in
Section 3(21) of ERISA) and prohibits certain transactions involving plans subject to ERISA and fiduciaries or other service
providers to such plans. Non-compliance with these provisions may expose an ERISA fiduciary or other service provider to
liability under ERISA, which may include monetary penalties as well as equitable remedies for the affected plan. Section 4975
of the Code prohibits certain transactions involving plans (as defined in Section 4975(e)(1), which includes individual
retirement accounts and Keogh plans) and service providers, including fiduciaries, to such plans. Section 4975 imposes excise
taxes for violations of these prohibitions.
In April 2016, the DOL adopted regulations (the “DOL fiduciary rule”) expanding the definition of who is a fiduciary
under ERISA, and specifying how such fiduciaries must provide investment advice to account holders in ERISA plans,
individual retirement accounts (“IRAs”), and certain other types of accounts described in the Code (collectively, “Covered
Accounts”). The DOL fiduciary rule as currently drafted brings virtually all of the investment products and services HD Vest
currently provides to IRA owners within the scope of ERISA and would require HD Vest to make significant changes to its
policies, procedures and products with respect to Covered Accounts. In November 2017, however, the DOL formally delayed
the effective date of key portions of the DOL fiduciary rule until July 2019. The purpose of this delay is to allow the DOL time
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to review and potentially substantially revise the fiduciary rule, and to facilitate coordination between the DOL and SEC
potentially to promulgate uniform standards of conduct for all financial professionals. It is uncertain what further actions the
DOL or SEC will take with respect to these matters or when any further rulemaking will be complete or effective. During this
delay, HD Vest, when dealing with Covered Accounts, must follow the DOL’s Impartial Conduct Standards, which require HD
Vest to act in the best interest of investors in Covered Accounts, charge no more than reasonable compensation, and avoid
making material misrepresentations. See the section entitled "Risks Associated With our Businesses" in Part I Item 1A of this
report for more information about the risks associated with future regulations and their potential impact on our operations.
Our Tax Preparation segment is subject to federal and state government requirements, including regulations related to the
electronic filing of tax returns, the provision of tax preparer assistance, and the use and disclosure of customer information. We
also offer certain other products and services to small businesses and consumers, which are also subject to regulatory
requirements. As we expand our products and services, both domestically and internationally, we may become subject to
additional government regulation. Further, regulators may adopt new laws or regulations or their interpretation of existing laws
or regulations may differ from ours or expand to cover additional products and services. These increased regulatory
requirements could impose higher regulatory compliance costs, limitations on our ability to provide some services in some
states or countries, and liabilities that might be incurred through lawsuits or regulatory penalties.
The Trump Administration has called for a broad review of, and potentially significant changes to, U.S. fiscal and tax
laws and regulations. These changes have resulted in comprehensive tax reform and include the rolling back or repeal of
various financial regulations, including the DOL fiduciary rule and the Dodd-Frank Act. We cannot predict the impact, if any,
of these changes to our businesses. However, it is possible that some policies adopted by the new administration will benefit us
and others will negatively affect us. Until we know what changes are enacted, we will not know whether in total we benefit
from, or are negatively affected by, the changes.
We are subject to federal and state laws and government regulations concerning employee safety and health and
environmental matters. The Occupational Safety and Health Administration, the Environmental Protection Agency, and other
federal and state agencies have the authority to promulgate regulations that may have an impact on our operations.
See the section entitled "Risks Associated With our Businesses" in Part I, Item 1A of this report for additional information
regarding risks related to governmental regulation of our business.
Intellectual Property
Our success depends upon our technology and intellectual property rights. We seek to protect such rights and the value of
our corporate brands and reputation through a variety of measures, including: domain name registrations, confidentiality and
intellectual property assignment agreements with employees and third parties, protective contractual provisions, and laws
regarding copyrights, trademarks, and trade secrets. We hold multiple registered trademarks in the United States and in various
foreign countries, and we may apply for additional trademarks as business needs require. We may not be successful in
obtaining issuance or registration for such applications or in maintaining existing trademarks. In addition, registered marks
may not provide us with any competitive advantages. We may be unable to adequately or cost-effectively protect or enforce
our intellectual property rights, and failure to do so could weaken our competitive position and negatively impact our business
and financial results. If others claim that our products infringe their intellectual property rights, we may be forced to seek
expensive licenses, re-engineer our products, engage in expensive and time-consuming litigation, or stop marketing and
licensing our products. See the section entitled "Risks Associated With our Businesses" in Part I Item 1A of this report for
additional information regarding protecting and enforcing intellectual property rights by us and third parties against us.
Employees
As of December 31, 2017, we had 487 full-time employees. None of our employees are represented by a labor union,
and we consider employee relations to be positive. There is significant competition for qualified personnel in the industries in
which we operate, particularly for software development and other technical staff. We believe that our future success will
depend in part on our continued ability to hire and retain qualified personnel.
Company Internet Site and Availability of SEC Filings
Our corporate website is located at www.blucora.com. We make available on that site, as soon as reasonably practicable,
our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, proxy statements, Current Reports on Form 8-K, other
reports filed with or furnished to the SEC, as well as any amendments to those filings. Our SEC filings, as well as our Code of
Ethics and Conduct and other corporate governance documents, can be found in the Investor Relations section of our site and
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are available free of charge. Information on our website is not part of this Annual Report on Form 10-K. In addition, the SEC
maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding
us and other issuers that file electronically with the SEC.
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 below. The occurrence of one or more of the events listed below could also have a material adverse effect on
the Company’s 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 Factors as
a “Material Adverse Effect.”
RISKS ASSOCIATED WITH OUR BUSINESSES
We may not be able to achieve the anticipated benefits of our Strategic Transformation, which could have a Material
Adverse Effect.
On October 14, 2015, we announced our Strategic Transformation plans. The Strategic Transformation refers to our
transformation into a technology-enabled financial solutions company comprised of TaxAct and HD Vest and the divestitures of
our Search and Content business that was operated through our former InfoSpace LLC subsidiary and our E-Commerce
business that consisted of the operations of Monoprice, Inc. in 2016. As part of the Strategic Transformation and our model of
operating as "One Company," we relocated our corporate headquarters in 2017 from Bellevue, Washington to Irving, Texas.
We may fail to realize the anticipated benefits of the Strategic Transformation, including the expected operational,
revenue, cost synergies, and other business synergies between our Wealth Management and Tax Preparation businesses and the
level of revenue and profitability growth that we are expecting, whether attributable to regulatory limitations, operational
realities, or otherwise. In addition, we have incurred and may continue to incur liabilities in connection with the Strategic
Transformation, including liabilities from retention bonuses, severance payments, early termination or assignment of contracts,
potential failure to meet obligations due to loss of employees or resources, and resulting litigation. We may also face
difficulties, including loss of personnel, disruptions in our ongoing operations, and diversion of management’s attention from
ongoing operations and opportunities, as we continue to integrate our operations, technologies, products, services, IT systems,
controls, benefit plans, and policies and procedures. If we are not able to achieve the anticipated benefits of the Strategic
Transformation, it could have a Material Adverse Effect.
In connection with our Strategic Transformation, we have had a leadership transition and have replaced nearly all of
our executive officers (excluding our Chief Executive Officer). While many of our executive officers have relevant industry
experience, they are new to our Company. In addition, in connection with the relocation, we have also replaced nearly all of
our corporate employees. Changes in senior management and employee transitions are inherently disruptive and can be
difficult to manage, and efforts to implement any new strategic or operating goals may not succeed in the absence of a long-
term management team. Periods of transition in senior management leadership are often difficult as the new executives gain
detailed knowledge of our operations and due to cultural differences that may result from changes in strategy and style. Our
lack of consistent leadership that is experienced with our Company may cause concerns to third parties with whom we do
business, and may increase the likelihood of turnover of our employees and, in the case of our Wealth Management business,
turnover of advisors. If we are not effective in managing these leadership and employee transitions, our business could be
adversely impacted and could have Material Adverse Effect.
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 online services. Intuit’s TurboTax and H&R Block’s products and services have a significant percentage of the
software and online 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, and Jackson Hewitt, and it may also be subject to new market entrants who may take some of our market share.
Finally, our Tax Preparation business faces the risk that state or federal taxing agencies will offer software or systems to
provide direct access for individual filers that will reduce the need for TaxAct’s software and services. As digital do-it-yourself
tax preparation continues to be characterized by intense competition, including heavy marketing expenditures, price-based
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competition, and new entrants, maintaining and growing 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. These or similar programs may be introduced or expanded in the future, which may cause us to lose
customers and revenue. Although the Free File Alliance, which is an Internal Revenue Service partnership that provides free
electronic tax filing services to taxpayers meeting certain income-based guidelines, has kept the federal government from being
a direct competitor to our tax offerings, we anticipate that governmental encroachment at both the federal and state levels may
present a continued competitive threat to our business for the foreseeable future. The current agreement with the Free File
Alliance is scheduled to expire in October 2020.
The wealth management industry in which our Wealth Management business also operates is 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.
Poor service or performance of the financial products we offer or competitive pressures on pricing of such services or products
may cause our Wealth Management business customers to withdraw assets on short notice.
Customer service and investment performance are important factors in the success of our Wealth Management
business. Strong customer service and investment performance help increase customer retention and generate sales of products
and services. In contrast, poor service or investment performance could impair our revenues and earnings, as well as our
prospects for growth. Customers can terminate their relationships with us or our financial advisors at will. There can be no
assurance as to how future investment performance will compare to that of our competitors, and historical performance is not
indicative of future returns. A decline or perceived decline in investment performance, on an absolute or relative basis, could
cause a decline in sales of mutual funds and other investment products, an increase in redemptions and the termination of asset
management relationships. Such actions may reduce our aggregate amount of assets under management and reduce
management fees. Poor investment performance could also adversely affect our ability to expand the distribution of our
products through independent financial advisors.
In addition, the emergence of new financial products or services from others, or competitive pressures on pricing of
such services or products, may result in the loss of accounts in our Wealth Management business. We must also monitor the
pricing of our services and financial products in relation to competitors and periodically may need to adjust commission and fee
rates, interest rates on deposits and margin loans, and other fee structures to remain competitive. Competition from other
financial services firms, such as reduced commissions to attract customers or trading volume, direct-to-investor online financial
services, or higher deposit interest rates to attract customer cash balances, could adversely impact our business. Customers of
our Wealth Management business can also reduce the aggregate amount of their assets managed by us or shift their funds to
other types of accounts with different rate structures, for any number of reasons, including investment performance, changes in
prevailing interest rates, changes in investment preferences, changes in our (or our financial advisors’) reputation in the
marketplace, changes in customer management or ownership, loss of key investment management personnel and financial
market performance. A reduction in managed assets and decrease in revenues and earnings from any of these events, could have
a Material Adverse Effect.
Changes in domestic and international economic, political and other factors could have a Material Adverse Effect on our
business.
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Our Wealth Management business operates in the United States and global financial markets, and our Tax Preparation
business offers tax filing services in the United States federal jurisdiction, various state jurisdictions and Canada. Accordingly,
we are affected by United States and global economic and political conditions that directly and indirectly impact a number of
factors in the domestic and global financial markets and economies, which may be detrimental to our operating results. In addition,
because the significant majority of our revenue is derived within the United States, economic conditions in the United States have
an even greater impact on us than companies with a more diverse international presence.
Domestic and international factors that could affect our business include, but are not limited to, trading levels, investing,
origination activity in the securities markets, security and underlying asset valuations, the absolute and relative level and volatility
of interest and currency rates, real estate values, the actual and perceived quality of issuers and borrowers, the supply of and
demand for loans and deposits, United States and foreign government fiscal and tax policies, United States and foreign government
ability, real or perceived, to avoid defaulting on government securities, inflation, decline and stress or recession in the United
States and global economies generally, terrorism and armed conflicts, and natural disasters such as weather catastrophes and
widespread health emergencies. Furthermore, changes in consumer economic variables, such as the number and size of personal
bankruptcy filings, the rate of unemployment, decreases in property values, certain life events, and the level of consumer confidence
and consumer debt, may substantially affect consumer loan levels and credit quality.
While United States and global financial markets have, at a macro level, recently experienced growth, uncertainty and
potential volatility remain. A period of sustained downturns and/or volatility in the securities markets, prolonged continuation of
the artificially low level of short-term interest rates, a return to increased credit market dislocations, reductions in the value of real
estate, and other negative market factors could have a Material Adverse Effect on our business. We could experience a decline in
commission revenue from lower trading volumes, a decline in fees from reduced portfolio values of securities managed on behalf
of our customers, a reduction in revenue from capital markets and advisory transactions due to reduced activity, increased credit
provisions and charge-offs, losses sustained from our customers’ and market participants’ failure to fulfill their settlement
obligations, reduced net interest earnings, and other losses. Periods of reduced revenue and other losses could be accompanied by
periods of reduced profitability because certain of our expenses, including, but not limited to, our interest expense on debt, rent,
facilities and salary expenses are fixed and, our ability to reduce them over short time periods is limited.
Other more specific trends may also affect our financial condition and results of operations, including, for example:
changes in the mix of products preferred by investors that may cause increases or decreases in our fee revenues associated with
such products, depending on whether investors gravitate towards or away from such products. The timing of such trends, if any,
and their potential impact on our financial condition and results of operations are beyond our control.
Challenging economic times and changes to the tax code (personal and/or corporate), such as the recent changes passed
under the Tax Cuts and Jobs Act, could cause potential new customers not to purchase or to delay purchasing of our products and
services, and could cause our existing customers to discontinue purchasing or delay upgrades of our existing products and services,
thereby negatively impacting our revenues and future financial results. Poor economic conditions and high unemployment have
caused, and could in the future cause, a significant decrease in the number of tax returns filed, which may have a significant effect
on the number of tax returns we prepare and file. In addition, weakness in the end-user consumer and small business markets could
negatively affect the cash flow of our distributors and resellers who could, in turn, delay paying their obligations to us, which
could increase our credit risk exposure and cause delays in our recognition of revenue or future sales to these customers. Any of
these events could have a Material Adverse Effect. See "We may be negatively impacted by the recently passed Tax Cuts and Jobs
Act or by any future changes in tax laws" for a discussion of risks related to changes in the tax code.
Each of these factors could impact customer activity in all of our businesses and have a Material Adverse Effect. In
addition, these factors also may have an impact on our ability to achieve our strategic objectives and to grow our business.
If we are unable to attract and retain productive advisors, our financial results will 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 attract new advisors or to retain and motivate our current advisors, our business may suffer. 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.
The market for productive advisors is highly competitive, and we devote significant resources to attracting and
retaining 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.
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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. If we are not successful in retaining highly qualified advisors, we may not be able to
recover the expense involved in attracting and training these individuals. There can be no assurance that we will be successful
in our efforts to attract and retain 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 those costs.
In addition, as some of HD Vest’s advisors grow their assets under management, they may decide to disassociate from
HD Vest to establish their own registered investment advisers (“RIAs”) and take customers and associated assets into those
businesses. HD Vest seeks to deter advisors from taking this route by continuously evaluating its technology, product offerings,
and service, as well as its advisor compensation, fees, and pay-out policies, to ensure that HD Vest is 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 HD Vest’s platform, which would reduce our revenues and
could cause a Material Adverse Effect.
Future revenue growth depends upon our ability to adapt to technological change and successfully introduce new and
enhanced products and services.
The tax preparation and wealth management industries are characterized by rapidly changing technology, evolving
industry and security standards, and frequent new product introductions. Our competitors in these industries offer new and
enhanced products and services every year. Consequently, customer expectations are constantly changing. We must
successfully innovate and develop or offer new products and features to meet evolving customer needs and demands, while
continually updating our technology infrastructure. We must devote significant resources to developing our skills, tools, and
capabilities in order to capitalize on existing and emerging technologies. Our inability to quickly and effectively innovate our
products, services, and infrastructure could result in a Material Adverse Effect.
We have recently begun offering our online tax preparation products and services through our mobile app. We have
limited experience to date in mobile platform development, and our existing user experience may not be compelling on mobile
devices. Given the speed at which new devices and platforms are being released, it is difficult to predict the problems we may
encounter in connection with our mobile app, and we may need to devote significant resources to the creation, support, and
maintenance of new user experiences. If our customers don’t deem our new mobile app user friendly or if they deem our
competitors’ mobile app more user friendly or better than ours, our market share will decline, which could have a Material
Adverse Effect. In addition, we regularly make upgrades to the technology we use for our tax preparation product that are
expected to provide a better user experience and help us to keep existing customers or attract new customers. If our mobile app
or the other upgrades we make to the technology we use in our Tax Preparation business are not successful, it could result in
wasted development costs, damage to our brands and market share, any of which could have a Material Adverse Effect.
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. 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.
Management fees are primarily based on assets under management, 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, in periods of declining market values, our asset values under management may also decline, which
would negatively impact our fee revenues and could have a Material Adverse Effect.
Government regulation of our business, including increased regulation or the interpretation of existing laws, rules or
regulations, could have a Material Adverse Effect.
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We are subject to federal, state, and local laws and regulations that affect our business, such as financial services, data
privacy and security requirements, tax, digital content, employment, consumer protection and fraud protection, among others.
In addition, there have been significant new regulations and heightened focus by the government on many of the laws and
regulations that affect our both our Wealth Management and our Tax Preparation businesses, as well as in areas such as
insurance and healthcare. As we complete our Strategic Transformation and expand our products and services and revise our
business models, we may become subject to additional government regulation or increased regulatory scrutiny. Regulators may
adopt new laws or regulations or their interpretation of existing laws or regulations may differ from ours as well as the laws of
other jurisdictions in which we operate, and if we are found to not be in compliance with certain laws, rules or regulations, it
could have a Material Adverse Effect. Increased or new regulatory requirements or changes in the interpretation of existing
laws, rules or regulations could, among other things, result in penalties or fines, impose significant limitations, require changes
to our business, require certain notifications to customers, customers, or employees, restrict our use of personal information,
cause our customers cease utilizing our products or services, could make our business more costly, less efficient, or impossible
to conduct, may require us to modify our current or future products or services in a manner that is detrimental to our business
and could result in additional compliance costs, which could have a Material Adverse Effect
The Trump Administration has called for a broad review of, and potentially significant changes to, certain U.S. laws
and regulations, including but not limited to the U.S. tax code, the Department of Labor (the "DOL") fiduciary rule (the
"Fiduciary Rule") and the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act"), which could
result in changes that negatively affect us. We cannot predict whether, when or to what extent any new or changes to existing
U.S. federal laws, regulations, interpretations or rulings will be issued or the impact of any such changes on our Tax
Preparation or Wealth Management businesses. See “The recently passed Tax Cuts and Jobs Act could have a Material Adverse
Effect” for additional risks recent changes in tax laws.
The tax preparation industry continues to receive heightened attention from federal and state governments. New
legislation, regulation, public policy considerations, changes in the cybersecurity environment, litigation by the government or
private entities, new interpretations of existing laws may result in greater oversight of the tax preparation industry, restrict the
types of products and services that we can offer or the prices we can charge, or otherwise cause us to change the way we
operate our Tax Preparation business or offer our tax preparation products and services. We may not be able to respond quickly
to such regulatory, legislative and other developments, and these changes may in turn increase our cost of doing business and
limit our revenue opportunities. In addition, if our practices are not consistent with new interpretations of existing laws, rules or
regulations, we may become subject to lawsuits, penalties, fines and other liabilities that did not previously apply. We are also
required to comply with Federal Trade Commission (the “FTC”) requirements and a variety of state revenue agency standards.
Requirements imposed by the FTC or state agencies, including new requirements or their interpretation of existing laws, rules
or regulations, could be burdensome on our business, cause us to lose market share due to product changes we are required to
implement or may significantly increase the costs of providing those services to our customers and may prevent us from
delivering a quality product to our customers in a timely manner and at an acceptable price, all of which could have a Material
Adverse Effect. In addition, in our Tax Preparation business, we generate revenue from certain financial products related to our
tax preparation software and services. These products include prepaid debit cards on which a tax filer may receive his or her tax
refund and the ability of certain of our users to have the fees for our services deducted from their tax refund. Any regulation of
these products by state or federal governments, or any competing products offered by state and federal tax collection agencies,
could materially and adversely impact our revenue from these financial products.
In addition, we are subject to laws, regulations, and industry rules relating to the collection, use, and security of user
data. We expect regulation in this area to increase, and our current data protection policies and practices may not be sufficient
and thus may require modification. We have incurred, and may continue to incur, significant expenses to comply with privacy
and security standards and protocols imposed by law, regulation, industry standards, and contractual obligations.
Our ability to comply with all applicable laws, rules and regulations, and interpretations is largely dependent on our
establishment and maintenance of compliance, audit, and reporting systems and procedures, as well as our ability to attract and
retain qualified compliance, audit, and risk management personnel. While we have adopted systems, policies, and procedures
reasonably designed to comply or facilitate compliance with all applicable laws, rules and regulations, and interpretations, these
systems, policies, and procedures may not be fully effective. There can be no assurance that we will not be subject to
investigations, claims, or other actions or proceedings by regulators or third-parties with respect to our past or future
compliance with applicable laws, rules, and regulations, the outcome of which may have a Material Adverse Effect.
If we fail to comply with applicable laws, rules, regulations and guidance, such failure could have a Material Adverse
Effect. See “Our Wealth Management business is subject to extensive regulation, and failure to comply with these regulations
could have a Material Adverse Effect" for additional information regarding the regulation of our business.
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Our Wealth Management business is subject to extensive regulation, and failure to comply with these regulations could have
a Material Adverse Effect.
Our Wealth Management business is heavily regulated by multiple agencies, including the Securities and Exchange
Commission (“SEC”), the DOL, the Financial Industry Regulatory Authority, 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.
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 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 HD Vest products and
services, manage HD Vest operations, and interact with regulators. In addition, the Trump Administration has called for a broad
review of, and potentially significant changes to, U.S. fiscal laws and regulations, including the Dodd-Frank Act. If such
changes are enacted, they could negatively impact our Wealth Management business and cause a Material Adverse Effect.
In 2016, the DOL enacted the Fiduciary Rule, which redefines who may be considered a fiduciary under ERISA and
how such fiduciaries must provide investment advice to individual retirement accounts or other accounts, the assets of which
are subject to section 4975 of the Internal Revenue Code (collectively, the "Covered Accounts"). During 2017, Covered
Accounts made up over half of the assets under administration in our Wealth Management business. The Fiduciary Rule will
bring virtually all of the investment products and services that our Wealth Management business currently provides to Covered
Account owners within the scope of ERISA.
The DOL has delayed the effective date of key portions of the Fiduciary Rule to July 2019. Other portions of the
Fiduciary Rule, however, remain in effect, including the Impartial Conduct Standards. The purpose of the delay is to permit the
DOL to reassess the Fiduciary Rule, as well as to facilitate coordination between the DOL and the SEC on rulemaking toward
possible uniform standards of conduct for all investment professionals. We cannot predict if and when the DOL or the SEC
will complete any such rulemaking or what it will entail. Should the DOL or SEC adopt new standards of conduct and other
requirements that heighten the duties of broker-dealers or investment advisers, it could result in additional compliance costs,
lesser compensation, and management distraction, all of which could have a Material Adverse Effect on our business. Because
the DOL’s Impartial Conduct Standards remain in effect, our Wealth Management business is required to continue good faith
efforts to conform its business to these standards. Because Covered Accounts comprise a significant portion of our business,
our failure to successfully conform to these standards could negatively impact our results due to increased costs related to
compliance, legal and information technology changes.
Our Wealth Management business distributes its products and services through financial advisors 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 advisors as independent contractors. Although we believe we have properly classified our
advisors as independent contractors, the U.S. Internal Revenue Service or other U.S. federal or state authorities or similar
authorities may determine that we have misclassified our advisors 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 Rule”) under the
Securities Exchange Act of 1934, 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
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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.
See “ Government regulation of our business, including increased regulation or the interpretation of existing laws,
rules or regulations, could have a Material Adverse Effect" for additional information regarding the regulation of our business.
The transition of our Wealth Management business to a new clearing platform may negatively impact our operations and
our advisors and the customers of our Wealth Management business.
Our Wealth Management business has entered into a new clearing services relationship with Fidelity Clearing &
Custody Solutions (“FCCS”), which becomes effective in September 2018 (the “Target Date”). The transition of our clearing
business to FCCS involves significant operational, technological, and logistical effort, since it will require all HD Vest
brokerage business and customer accounts to migrate to FCCS’s clearing platform, together with all of the underlying customer
data. Should we experience material delays or complications in this effort, it could have a Material Adverse Effect on our
business. In addition, our advisors or customers could be dissatisfied by the process of transitioning to FCCS, or by the
different technology, systems, processes, policies and products FCCS offers. Should a significant number of advisors or
customers, or assets under administration leave as a result, it could have a Material Adverse Effect.
The movement of business to a new clearing firm is an extremely complex and intensive undertaking and we have
committed a significant amount of human, technological, and financial resources to ensure that the transition is successfully
completed by the target date. Given the complexity and magnitude of the transition effort, however, there can be no guarantee
that we will not experience delays, unexpected costs, technological failures, incompatibility of systems or policies, or loss of
employees, advisors and customers. In completing the transition, we are dependent on key employees as well as outside
contractors. If those employees or contractors leave HD Vest or the project before completion, it could significantly delay the
completion of the transition. Failure to complete the transition to FCCS by the Target Date for any reason could result in a
Material Adverse Effect.
We may not realize the financial, operational, and customer-experience benefits that we project from our transition to
FCCS’s clearing platform. The technology, service and product offerings presented by FCCS may not be accepted by our
advisors or customers at the levels we anticipate, and may not provide the level of benefits that we expect even if accepted. We
also may not realize the level of conversion of direct-to-fund assets onto FCCS’s clearing platform that we anticipate. Should
the number of accounts or assets that convert to FCCS’s platform fall short of expectations, we will likely receive less
economic benefit from the new clearing arrangement than we expected, which could be material. Likewise, should the Federal
Reserve not increase interest rates at the pace or to the levels anticipated, we would likely recognize lower revenue from the
cash-sweep program under the new clearing arrangement, potentially in a material amount.
Our Wealth Management business is dependent on the performance, liquidity and continuity of its clearing firm.
Should its clearing firm fail to provide clearing services at the contracted levels for any reason, or to suffer a liquidity event, it
could result in a Material Adverse Effect.
Our operation systems and network infrastructure is subject to significant and constantly evolving cybersecurity and other
technological risks, and the security measures that we have implemented to secure confidential and personal information
may be breached; a potential breach may pose risks to the uninterrupted operation of our systems, expose us to mitigation
costs, litigation, investigation, fines and penalties by authorities, claims by persons whose information was disclosed, and
damage to our reputation.
We collect and retain certain sensitive personal data. Our Tax Preparation and Wealth Management businesses collect,
use, and retain large amounts of confidential personal and financial information from their customers, including information
regarding income, assets, family members, credit cards, tax returns, bank accounts, social security numbers, and healthcare.
Maintaining the integrity of our systems and networks is critical to the success of our business operations, including the
retention of our customers and advisors, and to the protection of our proprietary information and our customers' personal
information. A major breach of our systems or those of our third-party service providers may have materially negative
consequences for our businesses, including possible fines, penalties and damages, reduced demand for our services, harm to our
reputation and brands, further regulation and oversight by federal or state agencies, and loss of our ability to provide financial
transaction services or accept and process customer credit card orders or tax returns. We may detect, or we may receive notices
from customers or public or private agencies that they have detected, vulnerabilities in our servers or our software. The
existence of vulnerabilities, even if they do not result in a security breach, may harm customer confidence and require
substantial resources to address, and we may not be able to discover or remediate such security vulnerabilities before they are
exploited.
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In addition, hackers may develop and deploy viruses, worms, and other malicious software programs that can be used
to attack our offerings. Although we utilize network and application security measures, internal controls, and physical security
procedures to safeguard our systems, there can be no assurance that a security breach, intrusion, or loss or theft of personal
information will not occur. Any such incident could cause a Material Adverse Effect and require us to expend significant
resources to address these problems, including notification under data privacy regulations. In addition, our employees
(including temporary and seasonal employees) and contractors may have access to sensitive and personal information of our
customers, and employees. While we conduct background checks of our employees and these other individuals and limit access
to systems and data, it is possible that one or more of these individuals may circumvent these controls, resulting in a security
breach. In addition, we rely on third party vendors to host certain of our sensitive and personal information and data through
cloud services. While we conduct due diligence on these third party partners with respect to their security and business
controls, we may not have the ability to effectively monitor or oversee the implementation of these control measures, and, in
any event, individuals or third parties may be able to circumvent and/or exploit vulnerabilities that may exist in these security
and business controls, resulting in a loss of sensitive and personal customer or employee information and data.
While we maintain cyber liability insurance that provides both third-party liability and first-party liability coverages,
this insurance is subject to exclusions and may not be sufficient to protect us against all losses. In addition, the trend toward
broad consumer and general public notification of such incidents could exacerbate the harm to our business, financial
condition, or results of operations. Even if we successfully protect our technology infrastructure and the confidentiality of
sensitive data, we may incur significant expenses in connection with our responses to any such attacks as well as the adoption,
implementation, and maintenance of appropriate security measures. We could also suffer harm to our business and reputation if
attempted security breaches are publicized. We cannot be certain that advances in criminal capabilities, discovery of new
vulnerabilities, attempts to exploit vulnerabilities in our systems, data thefts, physical system or network break-ins,
inappropriate access, or other developments will not compromise or breach the technology or other security measures
protecting the networks and systems used in connection with our businesses.
Stolen identity refund fraud could impede our Tax Preparation customers’ ability to timely and successfully file their tax
returns and receive their tax refunds, and could diminish customers’ perceptions of the security and reliability of our tax
preparation products and services, resulting in negative publicity. Increased governmental regulation to attempt to combat
that fraud could result in a Material Adverse Effect.
We and other companies offering tax preparation services (especially those offering DDIY solutions) have seen a rise
in instances of criminals utilizing stolen information obtained through hacking, phishing, and other means of identity theft in
order to electronically file fraudulent federal and state tax returns. As a result, impacted taxpayers must complete additional
forms and go through additional steps in order to report to appropriate authorities that their identities have been stolen and their
tax returns were filed fraudulently. Though we offer assistance in the refund recovery process, stolen identity refund fraud
could impede our customers’ ability to timely and successfully file their returns and receive their tax refunds, and could
diminish customers’ perceptions of the security and reliability of our tax preparation products and services, resulting in negative
publicity, despite there having been no breach in the security of our systems. In addition, if stolen identity refund fraud is
perpetrated at a material level through our tax preparation products or services, state, federal, or foreign tax authorities may
refuse to allow us to continue to process our customers’ tax returns electronically. As a result, stolen identity fraud could have a
Material Adverse Effect on our Tax Preparation business.
Federal, state, and foreign governmental authorities in jurisdictions in which we operate have taken action, and may
take action in the future, in an attempt to combat stolen identity refund fraud, which may require changes to our systems and
business practices in ways we cannot anticipate. These actions may have a Material Adverse Effect on our Tax Preparation
business.
If we are unable to develop, manage, and maintain critical third party business relationships for our Tax Preparation and
Wealth Management businesses, it could result in a Material Adverse Effect.
Our Tax Preparation and Wealth Management businesses are dependent on the strength of our business relationships
and our ability to continue to develop, maintain, and leverage new and existing relationships. We rely on various third party
partners, including software and service providers, suppliers, vendors, distributors, contractors, financial institutions, and
licensing partners, among others, in many areas of these businesses to deliver our services and products. In certain instances,
the products or services provided through these third party relationships may be difficult to replace or substitute, depending on
the level of integration of the third party’s products or services into, or with, our offerings and/or the general availability of
such third party’s products and services. In addition, there may be few or no alternative third party providers or vendors in the
market. The failure of third parties to provide acceptable and high quality products, services, and technologies or to update their
products, services, and technologies may result in a disruption to our business operations, which may materially reduce our
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revenues and profits, cause us to lose customers and customers, and damage our reputation. Alternative arrangements and
services may not be available to us on commercially reasonable terms or we may experience business interruptions upon a
transition to an alternative partner.
Our Wealth Management business does not offer any proprietary financial products. Instead, it distributes investment
and insurance products through distribution agreements with third-party financial institutions, including banks, mutual funds,
and insurance companies. These products are sold by our advisors, who are independent contractors. Maintaining and
deepening relationships with these unaffiliated distributors and advisors is an important part of our growth strategy because
strong third-party distribution arrangements enhance our ability to market our products and increase our assets under
management, revenues, and profitability. There can be no assurance that the distribution and advisor relationships we have
established will continue. Our distribution partners and advisors may cease to operate, consolidate, institute cost-cutting efforts,
or otherwise terminate their relationship with us. Any such reduction in access to third-party distributors and advisors may have
a material adverse effect on our ability to market our products and to generate revenue in our Wealth Management segment. In
addition, there are risks associated with our third-party clearing firm that we rely on to provide clearing services for our Wealth
Management business that are discussed above.
Access to investment and insurance product distribution channels is subject to intense competition due to the large
number of competitors and products in the broker-dealer, investment advisory and insurance industries. Relationships with
distributors are subject to periodic negotiation that may result in increased distribution costs and/or reductions in the amount of
revenue we realize based on sales of particular products or customer assets. In addition, regulatory changes (such as the
Fiduciary Rule) may negatively impact our revenues and profits related to particular products or services. Any increase in the
costs to distribute our products or reduction in the type or amount of products made available for sale, or revenue associated
with those products, could have a Material Adverse Effect.
The seasonality of our Tax Preparation business requires a precise development and release schedule and any delays or
issues with accuracy or quality may damage our reputation and could result in a Material Adverse Effect.
Our tax preparation software and online service must be ready to launch in final form near the beginning of each
calendar year to take advantage of the full tax season. We must update the code for our software and service on a precise
schedule each year to account for annual changes in tax laws and regulations and ensure that the software and service are
accurate. Delayed and unpredictable changes to federal and state tax laws and regulations can cause an already tight
development cycle to become even more challenging. If we are unable to meet this precise schedule and we launch our
software and service late, we risk losing customers to our competitors. If we cannot develop our software with a high degree of
accuracy and quality, we risk errors in the tax returns that are generated. Such errors could result in loss of reputation, lower
customer retention, or legal claims, fees, and payouts related to the warranty on our software and service, which could result in
a Material Adverse Effect.
The specialized and highly seasonal nature of our Tax Preparation business presents financial risks and operational
challenges, which, if not satisfactorily addressed, could result in a Material Adverse Effect.
Our Tax Preparation business is highly seasonal, with a significant portion of our annual revenue for such services
earned in the first four months of our fiscal year. The concentration of our revenue-generating activity during this relatively
short period presents a number of challenges for us, including cash and resource management during the last eight months of
our fiscal year, when our Tax Preparation business generally operates at a loss and incurs fixed costs of preparing for the
upcoming tax season, responding to changes in competitive conditions, including marketing, pricing, and new product
offerings, which could affect our position during the tax season, and ensuring optimal uninterrupted operations and service
delivery during the tax season. If we experience significant business disruptions during the tax season or if we are unable to
satisfactorily address the challenges described above and related challenges associated with a seasonal business, it could result
in a Material Adverse Effect.
If our Tax Preparation business fails to process transactions effectively or fails to adequately protect against disputed or
potential fraudulent activities, it could have a Material Adverse Effect.
Our Tax Preparation business processes a significant volume and dollar value of transactions on a daily basis,
particularly during tax season. Due to the size and volume of transactions that we handle, effective processing systems and
controls are essential to ensure that transactions are handled appropriately. Despite our efforts, it is possible that we may make
errors or that fraudulent activity may affect our services. In addition to any direct damages and fines that may result from any
such problems, which may be substantial, a loss of confidence in our controls may materially harm our business and damage
our brand. The systems supporting our Tax Preparation business are comprised of multiple technology platforms, some of
which are difficult to scale. If we are unable to effectively manage our systems and processes, we may be unable to process
customer data in an accurate, reliable, and timely manner, which could result in a Material Adverse Effect.
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Our website and transaction management software, data center systems, or the systems of third-party co-location facilities
and cloud service providers could fail or become unavailable or otherwise be inadequate, which could materially harm our
reputation and result in a material loss of revenues and current or potential customers and customers and have a Material
Adverse Effect.
Any system interruptions that result in the unavailability or unreliability of our websites, transaction processing
systems, or network infrastructure could materially reduce our revenue and impair our ability to properly process transactions.
We use both internally developed and third-party systems, including cloud computing and storage systems, for our online
services and certain aspects of transaction processing. Some of our systems are relatively new and untested and thus may be
subject to failure or unreliability. Any system unavailability or unreliability may cause unanticipated system disruptions, slower
response times, degradation in customer satisfaction, additional expense, or delays in reporting accurate financial information.
For example, we have been migrating data to the cloud. This migration has been costly and has diverted some of management’s
attention and resources in order to ensure a smooth transition to the cloud.
Our data centers and cloud service could be susceptible to damage or disruption, which could have a Material Adverse
Effect. Our Tax Preparation and Wealth Management businesses have business continuity plans that include secondary disaster
recovery centers, but if their primary data centers fail and those disaster recovery centers do not fully restore the failed
environments, our business will suffer. In particular, if such interruption occurs during the tax season, it could have a Material
Adverse Effect on our Tax Preparation business.
Our systems and operations, and those of our third-party service providers and partners, could be damaged or
interrupted by fire, flood, earthquakes, other natural disasters, power loss, telecommunications failure, internet breakdown,
break-in, human error, software bugs, hardware failures, malicious attacks, computer viruses, computer denial of service
attacks, terrorist attacks, or other events beyond our control. Such damage or interruption may affect internal and external
systems that we rely upon to provide our services, take and fulfill customer orders, handle customer service requests, and host
other products and services. During the period in which services are unavailable, we will be unable or severely limited in our
ability to generate revenues, and we may also be exposed to liability from those third parties to whom we provide services. We
could face significant losses as a result of these events, and our business interruption insurance may not be adequate to
compensate us for all potential losses, which could result in a Material Adverse Effect.
Current and future litigation or regulatory proceedings or adverse court interpretations of the laws under which the
Company operates could have a Material Adverse Effect.
Many aspects of our business involve substantial risks of liability. We are currently subject to lawsuits and are likely
to be subject to litigation in the future. In highly volatile markets, the volume of claims and amount of damages sought in
litigation and regulatory proceedings against financial institutions have historically increased. Any lawsuits to which we are
subject, such as purported class actions, shareholder derivative lawsuits or claims by wealth management customers, could
result in substantial expenditures, generate adverse publicity and could significantly impair our business, or force us to cease
offering certain products or services. Defense of any lawsuit, even if successful, could require substantial time and attention of
our management and could require the expenditure of significant amounts for legal fees and other related costs. In addition,
litigation or regulatory proceedings or actions brought by state or federal agencies relating to our products or services may
result in additional restrictions on the offering of certain of our products or services. To the extent that any such additional
restrictions or legal claims restrict our ability to offer such products or services, it could result in a Material Adverse Effect.
If we are unable to hire, retain, and motivate highly qualified employees, including our key employees, we may not be able
to successfully manage our businesses.
Our future success depends on our ability to identify, attract, hire, retain, and motivate highly skilled management,
technical, sales and marketing, and corporate development personnel, including personnel with experience and expertise in the
wealth management, tax preparation, and technology industries to support our new strategic focus. Qualified personnel with
experience relevant to our businesses are scarce, and competition to recruit them is intense. If we fail to successfully hire and
retain a sufficient number of highly qualified employees, we may have difficulties in supporting or expanding our businesses.
Realignments of resources, reductions in workforce, or other operational decisions have created and could continue to create an
unstable work environment and may have a negative effect on our ability to hire, retain, and motivate employees.
Our business and operations are substantially dependent on the performance of our key employees. Changes of
management or key employees may disrupt operations, which may materially and adversely affect our business and financial
results or delay achievement of our business objectives. In addition, if we lose the services of one or more key employees and
are unable to recruit and retain a suitable successor with relevant experience, we may not be able to successfully and timely
manage our business or achieve our business objectives. There can be no assurance that any retention program we initiate will
be successful at retaining employees, including key employees.
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We use stock options, restricted stock units, and other equity-based awards to recruit and retain senior level
employees. With respect to those employees to whom we issue such equity-based awards, we face a significant challenge in
retaining them if the value of equity-based awards in aggregate or individually is either not deemed by the employee to be
substantial enough or deemed so substantial that the employee leaves after their equity-based awards vest. If our stock price
does not increase significantly above the exercise prices of our options, we may need to issue new equity-based awards in order
to motivate and retain our key employees. We may undertake or seek stockholder approval to undertake other equity-based
programs to retain our employees, which may be viewed as dilutive to our stockholders or may increase our compensation
costs. There can be no assurance that any such programs, if approved by stockholders, or any other incentive programs, would
be successful in motivating and retaining our employees.
We may be negatively impacted by the recently passed Tax Cuts and Jobs Act or by any future changes in tax laws.
On December 22, 2017, President Trump signed the Tax Cuts and Jobs Act into law. The change in the tax law will be
effective for our 2018 calendar year financial reporting period. The primary impacts to us include a reduction of the federal
corporate tax rate from 35% to 21% affecting our net deferred tax liabilities, repeal of corporate alternative minimum tax and
associated potential refunds of prior paid taxes, and potential deductible limits of certain executive compensation. These
changes could have a material impact to the value of deferred tax assets and liabilities and the Company’s future taxable
income and effective tax rate. The Company is continuing to analyze the Tax Cuts and Jobs Act. Until such analysis is
complete, the full impact of the new tax law on the Company in future periods is uncertain.
In addition, changes in tax laws, whether federal or state tax laws, require updates to our tax preparation software used
in our Tax Preparation business. Such updates are costly and may be time consuming to ensure that they accurately reflect the
new laws that are adopted. It is difficult to know at this time how our customers will view the new federal tax laws that were
enacted in late 2017. Possible outcomes include a short-term or long-term increase in customers that prefer professional tax
advice and preparation services rather than using our software or we may see a change in our how customers value our software
services as customers may perceive their tax preparation has become simpler as a result of the new tax laws, which could result
in lower demand for our products and could reduce revenue and/or the number of units sold. Further changes in the way that
state and federal governments structure their taxation regimes could also cause a Material Adverse Effect on our Tax
Preparation Business. The introduction of a simplified or flattened federal or state taxation structure may make our services less
necessary or attractive to individual filers, which could reduce revenue and the number of units sold. We also face risk from the
possibility of increased complexity in taxation structures, which may encourage some of our customers to seek professional tax
advice instead of using our software or services. In the event that such changes to tax structures cause us to lose market share or
cause a decline in customers, it could cause a Material Adverse Effect.
Our risk management and conflicts of interest policies and procedures may be ineffective or leave us exposed to unidentified
or unanticipated risks.
We are subject to the risks of errors and misconduct by our employees and financial advisors, such as fraud, non-
compliance with policies, recommending transactions that are not suitable, and improperly using or disclosing confidential
information. Although we have internal controls and other risk-mitigating factors in place, this type of conduct is difficult to
detect and deter, and could materially harm our business, results of operations or financial condition. We are further subject to
the risk of nonperformance or inadequate performance of contractual obligations by third-party vendors of products and
services that are used in our businesses. Management of operational, legal and regulatory risks requires, among other things,
policies and procedures to record properly and verify a large number of transactions and events, and these policies and
procedures may not be fully effective in mitigating our risk exposure in all market environments or against all types of risk.
Insurance and other traditional risk-shifting tools may be held by or available to us in order to manage certain exposures, but
they are subject to terms such as deductibles, coinsurance, limits and policy exclusions, as well as the risk of counterparty
denial of coverage, default or insolvency.
In our Wealth Management business, prevention and detection of wrongdoing or fraud by our advisors, who are not
our employees and tend to be located remotely from our headquarters, present unique challenges. There cannot be any
assurance that misconduct by our advisors will not lead to a Material Adverse Effect on our business.
RIAs have fiduciary obligations that require us and our advisors to act in the best interests of our customers and to
disclose any material conflicts of interest. Conflicts of interest are under growing scrutiny by U.S. federal and state regulators.
Our risk management processes include addressing potential conflicts of interest that arise in our business. Management of
potential conflicts of interest has become increasingly complex. A perceived or actual failure to address conflicts of interest
adequately could affect our reputation, the willingness of customers to transact business with us or give rise to litigation or
regulatory actions, any of which could have a Material Adverse Effect.
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Our business depends on our strong reputation and the value of our brands, which could be negatively impacted by poor
performance.
Developing and maintaining awareness of our brands is critical to achieving widespread acceptance of our existing
and future products and services and is an important element in attracting new customers and customers. Adverse publicity
(whether or not justified) relating to regulatory proceedings or other events or activities attributed to our businesses, our
employees, our vendors, or our partners may tarnish our reputation and reduce the value of our brands. Damage to our
reputation and loss of brand equity may reduce demand for our products and services and have a material adverse effect on our
future financial results. Such damage also would require additional resources to rebuild our reputation and restore the value of
the brands.
If others claim that our services infringe their intellectual property rights, we may be forced to seek expensive licenses,
reengineer our services, engage in expensive and time-consuming litigation, or stop marketing and licensing our services.
Companies and individuals with rights relating to the technology industry have frequently resorted to litigation
regarding intellectual property rights. These parties have in the past made and may in the future make claims against us alleging
infringement of patents, copyrights, trademarks, trade secrets, or other intellectual property or proprietary rights, or alleging
unfair competition or violations of privacy or publicity rights. Responding to any such claims could be time-consuming, result
in costly litigation, divert management’s attention, cause product or service release delays, or require removal or redesigning of
our products or services, payment of damages for infringement, or entry into royalty or licensing agreements. Our technology,
services, and products may not be able to withstand any third-party claims or rights against their use. In some cases, the
ownership or scope of an entity’s or person’s rights is unclear. In addition, the ownership or scope of such rights may be altered
by changes in the legal landscape, such as through developments in U.S. or international intellectual property laws or
regulations or through court, agency, or regulatory board decisions. If a successful claim of infringement were made against us
and we could not develop non-infringing technology or content, or license the infringed or similar technology or content, on a
timely and cost-effective basis, our financial condition and results of operations could be materially and adversely affected.
We do not regularly conduct patent searches to determine whether the technology used in our products or services
infringes patents held by third parties. Patent searches may not return every issued patent or patent application that may be
deemed relevant to a particular product or service. It is therefore difficult to determine, with any level of certainty, whether a
particular product or service may be construed as infringing a current or future U.S. or foreign patent.
We rely heavily on our technology and intellectual property, but we may be unable to adequately or cost-effectively
protect or enforce our intellectual property rights, thereby weakening our competitive position and negatively impacting our
business and financial results. We may have to litigate to enforce our intellectual property rights, which can be time consuming,
expensive, and difficult to predict.
To protect our rights in our services and technology, we rely on a combination of copyright and trademark laws, trade
secrets, confidentiality agreements with employees and third parties, and protective contractual provisions. We also rely on
laws pertaining to trademarks and domain names to protect the value of our corporate brands and reputation. Despite our efforts
to protect our proprietary rights, unauthorized parties may copy aspects of our services or technology, obtain and use
information, marks, or technology that we regard as proprietary, or otherwise violate or infringe our intellectual property rights.
In addition, it is possible that others could independently develop substantially equivalent intellectual property. If we do not
effectively protect our intellectual property, or if others independently develop substantially equivalent intellectual property, our
competitive position could be materially weakened.
Effectively policing the unauthorized use of our services and technology is time-consuming and costly, and the steps
taken by us may not prevent misappropriation of our technology or other proprietary assets. The efforts we have taken to
protect our proprietary rights may not be sufficient or effective, and unauthorized parties may copy aspects of our services, use
similar marks or domain names, or obtain and use information, marks, or technology that we regard as proprietary. In some
cases, the ownership or scope of an entity’s or person’s rights is unclear and may also change over time, including through
changes in U.S. or international intellectual property laws or regulations or through court, agency, or regulatory board
decisions. We may have to litigate to enforce our intellectual property rights, to protect our trade secrets, or to determine the
validity and scope of others’ proprietary rights, which are sometimes not clear or may change. Litigation can be time-
consuming and expensive, and the outcome can be difficult to predict.
We may seek to acquire companies or assets that complement our Wealth Management and Tax Preparation businesses, and
if we are unsuccessful in completing any such acquisitions on favorable terms or integrating any company acquired it could
result in a Material Adverse Effect.
22
We may seek to acquire companies or assets that complement our Wealth Management and Tax Preparation
businesses. There can be no guarantee that any of the opportunities that we evaluate will result in the purchase by us of any
business or asset being evaluated, or that, if acquired, we will be able to successfully integrate such acquisition.
If we are successful in our pursuit of any complementary acquisition opportunities, we intend to use available cash,
debt and/or equity financing, and/or other capital or ownership structures designed to diversify our capital sources and attract a
competitive cost of capital, all of which may change our leverage profile. There are a number of factors that impact our ability
to succeed in acquiring the companies and assets we identify, including competition for these companies and assets, sometimes
from larger or better-funded competitors. As a result, our success in completing acquisitions is not guaranteed. Our expectation
is that, to the extent we are successful, any acquisitions will be additive to our businesses, taking into account potential benefits
of operational synergies. However, these new business additions and acquisitions, if any, involve a number of risks and may not
achieve our expectations, and, therefore, we could be materially and adversely affected by any such new business additions or
acquisitions. There can be no assurance that the short or long-term value of any business or technology that we develop or
acquire will be equal to the value of the cash and other consideration that we pay or expenses we incur.
RISKS RELATED TO OUR FINANCING ARRANGEMENTS
We incurred debt in connection with the repayment of our credit facility used for the acquisition of HD Vest and the
redemption of our convertible senior notes and may incur future debt, which may materially and adversely affect our
financial condition and future financial results.
As of December 31, 2017, we had $345.0 million of outstanding indebtedness in the form of a term loan under a
Credit Agreement to which we, and most of our direct and indirect domestic subsidiaries (in their capacity as guarantors), are
parties. The final maturity date of the term loan is May 22, 2024. The proceeds of the term loan were used to repay in full the
credit facility used for the acquisition of HD Vest and to redeem in full our convertible senior notes. We may also borrow an
additional amount under this Credit Agreement of up to $50.0 million under a revolving credit arrangement.
This borrowing 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.
Our Credit Agreement imposes certain restrictions on us, including restrictions on our ability to create liens, incur
indebtedness and make investments. In addition, our Credit Agreement includes 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.
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.
Although we believe that existing cash and cash equivalents, and cash generated from operations will be sufficient to
meet our anticipated cash needs for servicing debt, working capital, and capital expenditures for at least the next 12 months, the
underlying levels of revenues and expenses that we project may not prove to be accurate. As of December 31, 2017, we had
$345.0 million outstanding under our term loan that was entered into in May 2017. Servicing this debt will require the
dedication of a portion of our expected cash flow from operations, thereby reducing the amount of our cash flow available for
other purposes. In addition, our ability to make scheduled payments of the principal of, to pay interest on, or to refinance our
indebtedness depends on our future performance, which is subject to economic, financial, competitive, and other factors
beyond our control. Our businesses may not continue to generate cash flow from operations in the future sufficient to service
our debt and make necessary capital expenditures. If we are unable to generate such cash flow, we may be required to adopt one
or more alternatives, such as selling assets, restructuring debt, or obtaining additional equity capital on terms that may be
onerous or highly dilutive. Our ability to refinance our indebtedness will depend on the capital markets and our financial
23
condition and results at such time. We may not be able to engage in any of these activities or engage in these activities on
desirable terms, which could result in a default on our debt obligations.
In addition, we may evaluate complementary acquisitions of businesses, products, or technologies from time to time.
Any such transactions, if completed, may use a significant portion of our cash balances and marketable investments. If we are
unable to liquidate our investments when we need liquidity for complementary acquisitions or for other business purposes, we
may need to change or postpone such acquisitions or find alternative financing for them. We may seek additional funding
through public or private financings, through sales of equity, or through other arrangements. Our ability to raise funds may be
materially and adversely affected by a number of factors, including factors beyond our control, such as economic conditions in
the markets in which we operate and increased uncertainty in the financial, capital, and credit markets. Adequate funds may not
be available when needed or may not be available on favorable terms. If we raise additional funds by issuing equity securities,
dilution to existing stockholders may result. If funding is insufficient at any time in the future, we may be unable, or delayed in
our ability, to develop or enhance our products or services, take advantage of business opportunities, or respond to competitive
pressures, any of which could materially harm our business.
OTHER RISKS
Our stock price has been highly volatile and such volatility may continue.
The trading price of our common stock has been highly volatile, and such volatility does not always correspond to
fluctuations in the market. Between January 1, 2016 and December 31, 2017, our closing stock price ranged from $4.76 to
$25.90. On February 21, 2018, the closing price of our common stock was $24.50. Our stock price could decline or fluctuate
significantly in response to many factors, including the other risks discussed in this report and the following:
•
•
•
•
•
•
•
•
•
•
•
actual or anticipated variations in quarterly and annual results of operations;
impairment charges, changes in or loss of material contracts and relationships, dispositions or announcements of
complementary acquisitions, or other business developments by us, our partners, or our competitors;
conditions or trends in the tax preparation or wealth management markets or changes in market share;
changes in general conditions in the United States and global economies or financial markets;
announcements of technological innovations or new services by us or our competitors;
changes in financial estimates or recommendations by securities analysts;
disclosures of any accounting issues, such as restatements or material weaknesses in internal control over financial
reporting;
equity issuances resulting in the dilution of stockholders;
the adoption of new regulations or accounting standards;
adverse publicity (whether justified or not) with respect to our business; and
announcements or publicity relating to litigation or governmental enforcement actions.
In addition, the equities market has experienced extreme price and volume fluctuations, and our stock has been
particularly susceptible to such fluctuations. Often, class action litigation has been instituted against companies after periods of
volatility in the price of such companies’ stock. We have been defendants in such class action litigation in prior periods and
could be subject to future litigation, potentially resulting in substantial cost and diversion of management’s attention and
resources.
Our financial results may fluctuate, which could cause our stock price to be volatile or decline.
Our financial results have varied on a quarterly basis and are likely to continue to fluctuate in the future. These
fluctuations could cause our stock price to be volatile or decline. Many factors could cause our quarterly results to fluctuate
materially, including but not limited to:
•
•
•
•
•
•
•
•
the inability of any of our businesses to meet our expectations;
the seasonality of our Tax Preparation business and the resulting large quarterly fluctuations in our revenues;
the success or failure of our Strategic Transformation and our ability to implement those initiatives in a cost effective
manner;
variable demand for our services, rapidly evolving technologies and markets, and consumer preferences;
the level and mix of assets we have under management and administration, which are subject to fluctuation based on
market conditions and customer activity;
the mix of revenues generated by existing businesses, discontinued operations or other businesses that we develop or
acquire;
gains or losses driven by fair value accounting;
litigation expenses and settlement costs;
24
• misconduct by employees and/or HD Vest financial advisors, which is difficult to detect and deter;
expenses incurred in finding, evaluating, negotiating, consummating, and integrating acquisitions;
•
impairment or negative performance of the many different industries and counterparties we rely on and are exposed to;
•
any restructuring charges we may incur;
•
any economic downturn, which could result in lower acceptance rates on premium products and services offered by
•
our Wealth Management business and impact the commissions and fee revenues of our financial advisory services;
new court rulings, or the adoption of new or interpretation of existing laws, rules, or regulations, that adversely affect
our business or that otherwise increase our potential liability or compliance costs;
impairment in the value of long-lived assets or the value of acquired assets, including goodwill, technology, and
acquired contracts and relationships; and
the effect of changes in accounting principles or standards or in our accounting treatment of revenues or expenses.
•
•
•
For these reasons, among others, you should not rely on period-to-period comparisons of our financial results to
forecast our future performance. Furthermore, our fluctuating operating results may fall below the expectations of securities
analysts or investors and financial results volatility could make us less attractive to investors, either of which could cause the
trading price of our stock to decline.
Our utilization of our net operating loss carryforwards (“NOLs”) may be severely limited or potentially eliminated.
As of December 31, 2017, we had federal NOLs of $519.7 million that will expire primarily between 2020 and 2027,
with the majority of them expiring between 2020 and 2024. We are currently able to offset all of our tax liabilities with our
NOLs, but we don’t expect to generate sufficient taxable income in future years to utilize all of our NOLs prior to their
expiration. If our NOLs expire unused, their full benefit will not be achieved. In addition, in years where our income exceeds
our NOLs, which we expect to begin occurring in 2022, we will be required to make additional income tax payments.
In addition, if we were to have a change of ownership within the meaning of Section 382 of the Internal Revenue Code
(defined as a cumulative change of 50 percentage points or more in the ownership positions of certain stockholders owning five
percent or more of a company’s common stock over a three-year rolling period), then under certain conditions, the amount of
NOLs we could use in any one year could be limited. Our certificate of incorporation imposes certain limited transfer
restrictions on our common stock that we expect will assist us in preventing a change of ownership and preserving our NOLs,
but there can be no assurance that these restrictions will be sufficient. In addition, other restrictions on our ability to use the
NOLs may be triggered by a merger or acquisition, depending on the structure of such a transaction. It is our intention to limit
the potential impact of these restrictions, but there can be no guarantee that such efforts will be successful.
If we are unable to use our NOLs before they expire, or if the use of this tax benefit is severely limited or eliminated,
there could be a material reduction in the amount of after-tax income and cash flow from operations, and it could have an effect
on our ability to engage in certain transactions.
Delaware law and our charter documents may impede or discourage a takeover, which could cause the market price of our
shares to decline.
We are a Delaware corporation and the anti-takeover provisions of Delaware law impose various impediments to the
ability of a third party to acquire us, even if a change of control would be beneficial to our existing stockholders. For example,
Section 203 of the Delaware General Corporation Law may discourage, delay, or prevent a change in control by prohibiting us
from engaging in a business combination with an interested stockholder for a period of three years after the person becomes an
interested stockholder. In addition, our certificate of incorporation and bylaws contain provisions that may discourage, delay, or
prevent a third party from acquiring us without the consent of our board of directors, even if doing so would be beneficial to
our stockholders. Provisions of our charter documents that could have an anti-takeover effect include:
•
•
•
•
•
•
•
the classification of our board of directors, which is being phased out between 2017 and 2020, into three groups so that
directors serve staggered three-year terms, which may make it difficult for a potential acquirer to gain control of our
board of directors;
the requirement for super majority approval by stockholders for certain business combinations;
the ability of our board of directors to authorize the issuance of shares of undesignated preferred stock without a vote
by stockholders;
the ability of our board of directors to amend or repeal our bylaws;
limitations on the removal of directors;
limitations on stockholders’ ability to call special stockholder meetings;
advance notice requirements for nominating candidates for election to our board of directors or for proposing matters
that can be acted upon by stockholders at stockholder meetings; and
25
•
certain restrictions in our charter on transfers of our common stock designed to preserve our federal NOLs.
At our 2009 annual meeting, our stockholders approved an amendment to our certificate of incorporation that restricts
any person or entity from attempting to transfer our stock, without prior permission from the Board of Directors, to the extent
that such transfer would (i) create or result in an individual or entity becoming a five-percent stockholder of our stock, or (ii)
increase the stock ownership percentage of any existing five-percent stockholder. This amendment provides that any transfer
that violates its provisions shall be null and void and would require the purported transferee to, upon our demand, transfer the
shares that exceed the five percent limit to an agent designated by us for the purpose of conducting a sale of such excess shares.
This provision in our certificate of incorporation may make the acquisition of Blucora more expensive to the acquirer and could
significantly delay, discourage, or prevent third parties from acquiring Blucora without the approval of our board of directors.
26
ITEM 1B. Unresolved Staff Comments
None.
ITEM 2. Properties
All of our facilities are leased. We believe our properties are suitable and adequate for our present and anticipated near-
term needs.
Our principal corporate office is located in Irving, Texas. The headquarters and data center facility for our HD Vest
business, which comprises our Wealth Management segment, are in Irving, Texas, and we have a backup data center for our HD
Vest business in Elk Grove, Illinois, as well as access to multiple disaster recovery and data centers across the country through
a third party vendor. The headquarters and data center facility for our TaxAct business, which comprises our Tax Preparation
segment, are in Cedar Rapids, Iowa, and we also use a cloud computing platform for disaster recovery.
ITEM 3. Legal Proceedings
See "Note 10: Commitments and Contingencies" of the Notes to Consolidated Financial Statements in Part II Item 8 of
this report for information regarding legal proceedings.
ITEM 4. Mine Safety Disclosures
None.
27
ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
PART II
Securities
Market for Our Common Stock
Our common stock trades on the NASDAQ Global Select Market under the symbol “BCOR.” The following table sets
forth, for the periods indicated, the high and low sales prices for our common stock as reported by the NASDAQ Global Select
Market.
Year ended December 31, 2017
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Year ended December 31, 2016
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
High
Low
$
$
$
$
$
$
$
$
18.00
22.50
25.95
26.15
10.11
10.55
13.03
15.85
$
$
$
$
$
$
$
$
14.25
16.65
19.40
19.05
4.69
4.96
9.64
10.98
On February 21, 2018, the last reported sale price for our common stock on the NASDAQ Global Select Market was
$24.50 per share.
Holders
As of February 21, 2018, there were 373 holders of record of our common stock. A substantially greater number of
holders are beneficial owners whose shares are held of record by banks, brokers, and other financial institutions.
Dividends
There were no dividends paid in 2017 and 2016.
Share Repurchases
See "Note 11: Stockholders' Equity" of the Notes to Consolidated Financial Statements in Part II Item 8 of this report for
additional information regarding the Company’s stock repurchase program that concluded in May 2016.
28
ITEM 6. Selected Financial Data
The following data are derived from our audited consolidated financial statements and should be read along with
"Management’s Discussion and Analysis of Financial Condition and Results of Operations" in Part II Item 7, our consolidated
financial statements and notes in Part II Item 8, and other financial information included elsewhere in this report.
Consolidated Statements of Operations Data: (1)
Revenue:
Wealth management services revenue
Tax preparation services revenue
Total revenue
Operating income (loss)
Other loss, net
Income (loss) from continuing operations
before income taxes
Income tax benefit
Income (loss) from continuing operations
Discontinued operations, net of income taxes
Net income (loss)
(2)
Net income attributable to noncontrolling
interests
Net income (loss) attributable to Blucora,
Inc.
Years ended December 31,
2017
2016
2015
2014
2013
(In thousands, except per share data)
$ 348,620
$ 316,546
$
— $
— $
—
160,937
509,557
48,037
(44,551)
3,486
25,890
29,376
—
29,376
139,365
455,911
37,117
(39,781)
(2,664)
1,285
(1,379)
(63,121)
(64,500)
117,708
117,708
(4,807)
(12,542)
(17,349)
4,623
(12,726)
(27,348)
(40,074)
103,719
103,719
4,603
(13,489)
(8,886)
3,342
(5,544)
(30,003)
(35,547)
91,213
91,213
(3,478)
(29,568)
(33,046)
7,385
(25,661)
50,060
24,399
(2,337)
(658)
—
—
—
$
27,039
Net income (loss) per share attributable to Blucora, Inc. - basic:
Continuing operations
Discontinued operations
Basic net income (loss) per share
Weighted average shares outstanding, basic
$
$
0.61
—
0.61
44,370
Net income (loss) per share attributable to Blucora, Inc. - diluted:
Continuing operations
Discontinued operations
Diluted net income (loss) per share
$
$
0.57
—
0.57
$
$
$
$
$
(65,158) $
(40,074) $
(35,547) $
24,399
(0.05) $
(1.52)
(1.57) $
(0.31) $
(0.67)
(0.98) $
(0.13) $
(0.73)
(0.86) $
(0.62)
1.21
0.59
41,494
40,959
41,396
41,201
(0.05) $
(1.52)
(1.57) $
(0.31) $
(0.67)
(0.98) $
(0.13) $
(0.73)
(0.86) $
(0.62)
1.21
0.59
Weighted average shares outstanding, diluted
47,211
41,494
40,959
41,396
41,201
Consolidated Balance Sheet Data:
Cash, cash equivalents, and investments
Working capital
Total assets
Total long-term liabilities
Total stockholders’ equity
(1)
(2) (3) (4)
(2) (3) (4) (5)
$
59,965
$
58,814
$
66,774
$ 293,588
$ 323,429
47,641
43,480
174,571
1,001,671
1,022,659
1,299,548
390,495
541,387
535,577
417,019
656,122
462,284
299,431
865,775
311,692
479,025
140,100
969,677
171,268
514,070
(1) On December 31, 2015, we acquired HD Vest. See "Note 3: Business Combinations" of the Notes to Consolidated
Financial Statements in Part II Item 8 of this report.
(2) On October 14, 2015, we announced plans to divest the Search and Content and E-Commerce businesses. Accordingly,
the operating results of these businesses have been presented as discontinued operations for all periods presented, and the
related balance sheet data have been classified in their entirety within current assets and current liabilities as of December
31, 2015 but classified within current and long-term assets and liabilities, as appropriate, for prior periods. We sold the
Search and Content business and the E-Commerce business on August 9, 2016 and November 17, 2016, respectively.
(3) During 2016 and 2015, the Convertible Senior Notes (the "Notes") were classified as a long-term liability with an
outstanding balance, net of discount and issuance costs, of $164.2 million, and $185.9 million, respectively. The Notes
29
(4)
were classified as a current liability in 2013. See "Note 9: Debt" of the Notes to Consolidated Financial Statements in
Part II Item 8 of this report.
See "Note 4: Discontinued Operations" and "Note 9: Debt" of the Notes to Consolidated Financial Statements in Part II
Item 8 of this report for a discussion of debt activity.
(5) During 2013, the Monoprice acquisition resulted in a $27.7 million deferred tax liability related to intangible assets.
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis in conjunction with the Selected Financial Data and our
consolidated financial statements and notes thereto included elsewhere in this report. The following discussion contains
forward-looking statements that are subject to risks and uncertainties. See Part I "Cautionary Statement Regarding Forward-
Looking Statements" for a discussion of the uncertainties, risks and assumptions associated with those statements. Actual
results could differ materially from those discussed in or implied by forward-looking statements as a result of various factors,
including those discussed below and elsewhere in this report, particularly in the section titled "Risk Factors."
Introduction
Blucora operates two businesses: a Wealth Management business and an online Tax Preparation business. The Wealth
Management business consists of the operations of HD Vest, which we acquired on December 31, 2015. HD Vest is included in
Blucora's results of operations beginning on January 1, 2016. HD Vest provides wealth management solutions for financial
advisors and their clients. The Tax Preparation business consists of the operations of TaxAct and provides digital tax
preparation solutions for consumers, small business owners, and tax professionals.
Prior to 2017, Blucora also operated an internet Search and Content business and an E-Commerce business. The Search
and Content business, InfoSpace, operated a number of digital businesses in search, directory, online commerce, media, and
mobile infrastructure markets, with operations since 2008 focusing on internet search services and content. The E-Commerce
business consisted of the operations of Monoprice and sold self-branded electronics and accessories to both consumers and
businesses.
Strategic Transformation
On October 14, 2015, the Company announced its plans to focus on the technology-enabled financial solutions market.
Strategic Transformation refers to the Company's transformation into a technology-enabled financial solutions company
comprised of TaxAct and HD Vest (see "Note 3: Business Combinations") and the divestitures of the Search and Content and E-
Commerce businesses in 2016 (see "Note 4: Discontinued Operations"). As part of the Strategic Transformation and "One
Company" operating model, the Company announced on October 27, 2016 plans to relocate its corporate headquarters by June
2017 from Bellevue, Washington to Irving, Texas. In connection with this plan, we have incurred restructuring costs of
approximately $7.0 million. These costs are recorded within corporate-level activity for segment purposes. See "Note 5:
Restructuring" of the Notes to Consolidated Financial Statements in Part II Item 8 of this report for additional information. We
also have incurred costs that were not included as restructuring, such as recruiting and overlap in personnel expenses as we
transition positions to Texas ("Strategic Transformation Costs"). The actions to relocate corporate headquarters were
intended to drive efficiencies and improve operational effectiveness (see "Note 5: Restructuring"). The restructuring is now
substantially complete and it is expected to be completed by early 2018. For a discussion of the associated risks, see the section
in our Risk Factors (Part I Item 1A. of this report) under the heading "Risks Associated With our Business."
Acquisitions: On December 31, 2015, we acquired HD Vest for $613.7 million, including cash acquired of $38.9 million
and after a $1.8 million final working capital adjustment in the first quarter of 2016. The acquisition was funded by a
combination of cash on hand and the TaxAct - HD Vest 2015 credit facility, under which we borrowed $400.0 million (the
"TaxAct - HD Vest 2015 credit facility"). During the last half of 2015, we incurred transaction costs of $11.0 million.
On July 2, 2015, TaxAct acquired SimpleTax, a provider of online tax preparation services for individuals in Canada
through its website www.simpletax.ca, for cash and additional consideration of up to $3.7 million that is contingent upon
product availability and revenue performance over a three-year period.
See "Note 3: Business Combinations" and "Note 9: Debt" of the Notes to Consolidated Financial Statements in Part II
Item 8 of this report for additional information on the HD Vest acquisition, the SimpleTax acquisition, and the credit facility,
respectively.
30
Business divestitures: On October 14, 2015, we announced plans to divest the Search and Content and E-Commerce
businesses. Accordingly, our financial condition, results of operations, and cash flows reflect the Search and Content and E-
Commerce businesses as discontinued operations for all periods presented. Unless otherwise specified, disclosures in
"Management's Discussion and Analysis of Financial Condition and Results of Operations" reflect continuing operations.
We completed both divestitures in 2016. Specifically, on November 17, 2016, we closed on an agreement with YFC,
under which YFC acquired the E-Commerce business for $40.5 million, which included a working capital adjustment. Of this
amount, $39.5 million was received in the fourth quarter of 2016 and the remaining $1.0 million was received in the first half
of 2017. On August 9, 2016, we closed on an agreement with OpenMail, under which OpenMail acquired substantially all of
the assets and assumed certain specified liabilities of the Search and Content business for $45.2 million, which included a
working capital adjustment. We used all of the proceeds from these sales to pay down debt. We also incurred employee-related
business exit costs of approximately $4.5 million, which primarily were recorded in discontinued operations. See "Note 4:
Discontinued Operations" of the Notes to Consolidated Financial Statements in Part II Item 8 of this report for additional
information on discontinued operations.
Our Continuing Businesses
Wealth Management
Our Wealth Management business provides financial advisors, who affiliate with HD Vest's registered broker-dealer
investment adviser and/or insurance subsidiaries as independent contractors, an integrated, open platform that includes a broad
variety of products offered through our brokerage, investment advisory, and insurance services to assist in making each
financial advisor a financial service center for his/her clients. We regularly review the commissions and fees we charge for
these products and services in light of the evolving regulatory and competitive environment and changes in client preferences
and needs. We do not offer any proprietary products. HD Vest generates revenue primarily through commissions, quarterly
investment advisory fees based on assets under management, and other fees.
HD Vest was founded to help tax and accounting professionals integrate financial services into their practices. HD Vest
primarily recruits independent tax professionals with established tax practices and offers specialized training and support,
which allows them to join the HD Vest platform as independent financial advisors. HD Vest's business model provides an
open-architecture investment platform and technology tools to help financial advisors identify investment opportunities for
their clients, while the long-standing tax advisory relationships provide a large client base of possible investment clients. This
results in an experienced and stable network of financial advisors, who have multiple revenue-generating options to diversify
their earnings sources. HD Vest also has a highly experienced home office team that is focused on solutions tailored to the
advisor's practice. The home office team provides marketing, practice management, insurance and annuity, wealth
management, succession planning, and other support to our advisors.
Our Wealth Management business is directly and indirectly sensitive to several macroeconomic factors and the state of
financial markets, particularly in the United States. For additional information regarding the potential impact of these
macroeconomic factors on our operations and results, see the Risk Factors "Changes in domestic and international economic,
political and other factors could have a Material Adverse Effect on our business" in Part I Item 1A of this report.
Our Wealth Management business is subject to certain additional financial industry regulations and supervision, including
by the SEC, FINRA, DOL, state securities and insurance regulators, and other regulatory authorities. For additional
information regarding the potential impact of governmental regulation on our operations and results, see the Risk Factor
"Government regulation of our business, including increased regulation or the interpretation of existing laws, rules or
regulations, could have a Material Adverse Effect" and "Our Wealth Management business is subject to extensive regulation,
and failure to comply with these regulations could have a Material Adverse Effect" in Part I Item 1A of this report.
Tax Preparation
Our Tax Preparation business provides DDIY tax preparation solutions for consumers and small business owners, and
preparation software for tax professionals. TaxAct generates revenue primarily through its online service at www.TaxAct.com.
The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, various state jurisdictions and Canada.
TaxAct's offerings come with a price lock guarantee, whereby the price at the start of the tax return filing process is the
price when the return is filed, rather than pricing the offering at the time that the tax return is filed. We believe this price lock
guarantee ensures price transparency and differentiates TaxAct from its competitors.
31
We had three offerings for consumers for tax year 2016, which is the basis for TaxAct's 2017 operating results: a "free"
federal and state edition that handled simple returns; a "plus" offering that contained all of the basic offering features in
addition to tools to maximize credits and deductions, and enhanced reporting; and a "premium" offering that contained all of
the plus offering features in addition to tools for self-employed individuals to maximize credits and deductions. For our
offerings, state returns can be filed for free for free simple filers, or through the separately-sold state edition. We also had an
offering for small business owners. In addition to these core offerings, TaxAct also offers ancillary services such as refund
payment transfer, audit defense, stored value cards, and retirement investment accounts through HD Vest, and a marketplace for
customers to take advantage of personalized tax and financial savings opportunities through third party product providers.
TaxAct’s professional tax preparer software allows professional tax preparers to file individual and business returns for
their clients. TaxAct offers flexible pricing and packaging options that help tax professionals save money by paying only for
what they need.
Seasonality
Our Tax Preparation segment is highly seasonal, with a significant portion of its annual revenue 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 nature of that part
of the business will continue in the foreseeable future.
Summary
RESULTS OF OPERATIONS
(In thousands, except percentages)
Years ended December 31,
Revenue
Operating income (loss)
2017
509,557
48,037
$
$
Percentage
Change
12% $
29% $
2016
455,911
37,117
Percentage
Change
287% $
872% $
2015
117,708
(4,807)
Year ended December 31, 2017 compared with year ended December 31, 2016
Revenue increased approximately $53.6 million due to increases of $32.1 million and $21.6 million in revenue related to
our Wealth Management and Tax Preparation businesses, respectively, as discussed in the following "Segment Revenue/
Operating Income" section.
Operating income increased approximately $10.9 million, consisting of the $53.6 million increase in revenue and offset
by a $42.7 million increase in operating expenses. Key changes in operating expenses were:
•
•
•
$27.5 million increase in the Wealth Management segment's operating expenses due to higher commissions paid to
our financial advisors, which fluctuated in proportion to the change in underlying commission and advisory
revenues earned on client accounts, and higher net personnel expenses as we continue to standardize employee
benefits across our businesses.
$15.5 million increase in the Tax Preparation segment’s operating expenses, primarily due to higher spending on
marketing, higher professional services fees mostly related to marketing and development projects, higher data
center costs related to software support and maintenance fees, increases in growth initiative investments, and higher
personnel expenses.
$0.3 million decrease in corporate-level expense activity primarily due to lower stock-based compensation costs due
to fewer grants in the current year and higher expense recognized in the prior year related to grants made to HD Vest
employees in 2016 in connection with the HD Vest acquisition, partially offset by activity within our Tax
Preparation business due to prior forfeitures, and lower personnel costs, both offset by Strategic Transformation
Costs.
•
Segment results are discussed in the next section.
32
Year ended December 31, 2016 compared with year ended December 31, 2015
Revenue increased approximately $338.2 million due to increases of $316.5 million and $21.7 million in revenue related
to our Wealth Management and Tax Preparation businesses, respectively. Wealth Management revenue increased due to the
timing of the HD Vest acquisition, and Tax Preparation revenue increased as discussed in the following "Segment Revenue/
Operating Income" section.
Operating income increased approximately $41.9 million, consisting of the $338.2 million increase in revenue and offset
by a $296.3 million increase in operating expenses. Key changes in operating expenses were:
•
•
•
$270.3 million increase in the Wealth Management segment's operating expenses due to the timing of the HD Vest
acquisition.
$11.7 million increase in the Tax Preparation segment’s operating expenses, primarily due to higher spending on
marketing, higher personnel expenses resulting from overall increased headcount supporting most functions, higher
data center costs mostly related to third-party technology fees (software support and maintenance, bandwidth and
hosting, and professional services), higher third-party costs associated with additional features in the current year
offerings, and an increase in professional services fees mostly related to development projects.
$14.3 million increase in corporate-level expense activity, primarily due to (i) higher amortization expense related to
HD Vest acquisition-related intangible assets, (ii) higher stock-based compensation mainly related to a net increase
in stock award grants (including to HD Vest employees), (iii) restructuring incurred in connection with the relocation
of our corporate headquarters, (iv) higher depreciation expense mainly related to HD Vest fixed assets, and (v)
higher personnel expenses resulting mainly from increased costs incurred as part of our Strategic Transformation,
offset by (vi) lower acquisition-related costs due to professional services fees and other direct transaction costs
incurred in the prior year related to the HD Vest acquisition, (vii) lower amortization expense associated with
concluding the useful life of certain TaxAct acquisition-related intangible assets during 2016, and (viii) separation-
related costs incurred in the prior year in connection with the departure of our former chief executive officer.
Segment results are discussed in the next section.
SEGMENT 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 U.S. (“GAAP”) and include certain reconciling items attributable to the segments. Segment
information appearing in "Note 13: Segment Information" of the Notes to Consolidated Financial Statements in Part II Item 8
of this report is presented on a basis consistent with our current internal management financial reporting. We do not allocate
certain general and administrative costs (including personnel and overhead costs), stock-based compensation, acquisition-
related costs, depreciation, amortization of acquired intangible assets, restructuring, other loss, net, and income taxes to
segment operating results. We analyze these separately.
Following the acquisition of HD Vest and the discontinued operations treatment of Search and Content and E-Commerce,
we have two reportable segments: Wealth Management and Tax Preparation.
Wealth Management
(In thousands, except percentages)
Revenue
Operating income
Segment margin
Years ended December 31,
Percentage Change
2017
348,620
50,916
$
$
15%
10% $
10% $
—%
2016
316,546
46,296
15%
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 and our resulting financial position and operating performance. A summary of our sources
of revenue and business metrics are as follows.
33
Sources of revenue
(In thousands, except percentages)
Year ended December 31,
Sources of Revenue
Primary Drivers
2017
Percentage Change
2016
Advisor-driven
Other revenue
Commission
Advisory
Asset-based
Transaction and fee
Total revenue
Total recurring revenue
Recurring revenue rate
- Transactions
- Asset levels
- Advisory asset levels
- Cash balances
- Interest rates
- Number of accounts
- Client asset levels
- Account activity
- Number of clients
- Number of advisors
- Number of accounts
$160,241
145,694
26,297
7% $150,125
13% 129,417
16%
22,653
16,388
14%
14,351
$348,620
$277,546
79.6%
10% $316,546
11% $249,310
78.8%
Recurring revenue consists of trailing commissions, advisory fees, fees from cash sweep programs, and certain
transaction and fee revenue, all as described further below in Commission revenue, Advisory revenue, Asset-based revenue, and
Transaction and fee revenue, respectively. Certain recurring revenues are associated with asset balances and will fluctuate
depending on market values and current interest rates. Accordingly, our recurring revenue can be negatively impacted by
adverse external market conditions. However, 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)
Total Assets Under Administration (“AUA”)
Advisory Assets Under Management (“AUM”)
Percentage of total AUA
Number of advisors (in ones)
Advisor-driven revenue per advisor
2017
$ 44,178,710
$ 12,530,165
28.4%
3,999
20.4
Years ended December 31,
Percentage Change
2016
14 % $ 38,663,595
21 % $ 10,397,071
(11)%
25 %
26.9%
4,472
16.3
Total assets under administration ("AUA") includes 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 AUA service for a client’s assets, the value of the asset is only counted once in the total amount of AUA. AUA
assets include Advisory Assets under Management, non-advisory brokerage accounts, annuities and mutual fund positions held
directly with fund companies. These assets are not reported on the consolidated balance sheets.
Advisory assets under management ("AUM") includes external 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 AUM for each advisory client. These assets are not reported on the
consolidated balance sheets.
As we reduce disengaged advisors, the number of advisors could continue to decrease before stabilizing. This decrease
could improve the growth in advisor-driven revenues per advisor, prior to advisor stabilization.
Year ended December 31, 2017 compared with year ended December 31, 2016
Wealth Management revenue increased approximately $32.1 million by each source of revenue discussed below.
Wealth Management operating income increased approximately $4.6 million, consisting of the $32.1 million increase in
revenue, offset by a $27.5 million increase in operating expenses. The increase in Wealth Management operating expenses was
primarily due to higher commissions paid to our financial advisors, which fluctuated in proportion to the change in underlying
commission and advisory revenues earned on client accounts, and higher net personnel expenses as we continue to standardize
employee benefits across our businesses.
34
Year ended December 31, 2016 compared with year ended December 31, 2015
On December 31, 2015, we acquired HD Vest., which is included in Blucora's results of operations as of January 1, 2016.
Commission revenue: We generate 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 on the overall economic environment, number of trading days in the reporting period, 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 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 sales-based and trailing, was as follows:
(In thousands)
By product category:
Mutual funds
Variable annuities
Insurance
General securities
Total commission revenue
By sales-based and trailing:
Sales-based
Trailing
Total commission revenue
Years ended December 31,
2017
Percentage Change
2016
$
84,159
6% $
79,476
51,385
13,146
11,551
8%
10%
4%
47,641
11,909
11,099
$ 160,241
7% $ 150,125
$
68,199
92,042
$ 160,241
6% $
64,452
7%
85,673
7% $ 150,125
In 2017, sales-based commission revenue increased approximately $3.7 million primarily due to increased activity in
mutual funds, insurance and general securities resulting from overall market performance, portfolio rebalancings, product
availability and segment refocusing. General securities include equities, exchange-traded funds, bonds and alternative
investments.
In 2017, trailing commission revenue increased approximately $6.4 million and reflects an increase in the market value of
the underlying assets and the impact of new investments.
Advisory revenue: Advisory revenue primarily includes fees charged to clients in advisory accounts where HD Vest is the
Registered Investment Adviser (“RIA”) and is based on the value of AUM. 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.
The activity within our AUM was as follows:
(In thousands)
Balance, beginning of the period
Net increase in new advisory assets
Market impact and other
Balance, end of the period
Year ended December 31,
2017
$ 10,397,071
$
2016
9,692,244
794,184
1,338,910
150,701
554,126
$ 12,530,165
$ 10,397,071
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. Advisory revenue for a
particular quarter is predominately driven by the prior quarter-end AUM.
In 2017, the increase in advisory revenue of approximately $16.3 million is consistent with the increase in the beginning-
of-period AUM for 2017 compared with 2016.
35
Asset-based revenue: Asset-based revenue primarily includes fees from financial product manufacturer sponsorship
programs and cash sweep programs.
In 2017, asset-based revenue increased $3.6 million, primarily from higher cash sweep revenues following increases in
interest rates. In the current interest rate environment, and through our current clearing provider, we will not benefit from any
future interest rate increases. We expect the 2018 transition of our clearing business to a new clearing firm to provide growth
opportunities in asset-based revenues.
Transaction and fee revenue: Transaction and fee revenue primarily includes fees for executing certain transactions in
client accounts and fees related to services provided and other account charges as generally outlined in agreements with
financial advisors, clients, and financial institutions.
In 2017, transaction and fee revenue increased approximately $2.0 million primarily related to advisor fee increases.
Tax Preparation
(In thousands, except percentages)
Years ended December 31,
Revenue
Operating income
Segment margin
2017
160,937
72,921
$
$
45%
Percentage
Change
15% $
9% $
2016
139,365
66,897
48%
Percentage
Change
18% $
17% $
2015
117,708
56,984
48%
Tax Preparation revenue is derived primarily from sales of our consumer tax preparation software and online services as
well as other offerings and ancillary services to consumers and small business owners. We also generate revenue through the
professional tax preparer software that we sell to professional tax preparers who use it to prepare and file individual and
business returns for their clients.
Revenue by category was as follows:
(In thousands, except percentages)
Years ended December 31,
Consumer
Professional
Total revenue
2017
147,084
13,853
160,937
$
$
Percentage
Change
16% $
6%
2016
126,289
13,076
Percentage
Change
20% $
6%
2015
105,367
12,341
15% $
139,365
18% $
117,708
We measure our consumer tax preparation customers using the number of accepted federal tax e-files made through our
software and online services. We consider growth in the number of e-files to be the most important non-financial metric in
measuring the performance of the consumer side of the Tax Preparation business. E-file metrics were as follows:
(In thousands, except percentages)
Years ended December 31,
Online e-files
Desktop e-files
Sub-total e-files
Free File Alliance e-files (1)
Total e-files
2017
Percentage
Change
2016
Percentage
Change
2015
4,097
193
4,290
176
4,466
(14)%
(21)%
(14)%
5 %
(14)%
4,759
244
5,003
167
5,170
(9)%
(11)%
(9)%
(8)%
(9)%
5,235
273
5,508
181
5,689
(1)
Free File Alliance e-files are provided as part of an IRS partnership that provides free electronic tax filing services to
taxpayers meeting certain income-based guidelines.
36
We measure our professional tax preparer customers using three metrics--the number of accepted federal tax e-files made
through our software, the number of units sold, and the number of e-files per unit sold. We consider growth in these areas to be
the most important non-financial metrics in measuring the performance of the professional tax preparer side of the Tax
Preparation business. Those metrics were as follows:
(In thousands, except percentages and as
otherwise indicated)
E-files
Units sold (in ones)
E-files per unit sold (in ones)
Years ended December 31,
2017
1,774
20,694
85.7
Percentage
Change
1 %
2 %
(1)%
2016
1,755
20,290
86.5
Percentage
Change
10%
5%
5%
2015
1,590
19,355
82.2
Year ended December 31, 2017 compared with year ended December 31, 2016
Tax Preparation revenue increased approximately $21.6 million primarily due to growth in revenue earned from online
consumer users and, to a lesser extent, increased sales of our professional tax preparer software. Online consumer revenue
grew, despite a decrease in e-files, due to growth in average revenue per user, primarily resulting from price increases, which
are expected to continue to be the primary driver of growth in the near future. The decrease in e-files is consistent with our
expectations as we are in the early stages of a multi-year pivot toward profitable customers. Revenue derived from
professional tax preparers increased primarily due to an increase in the number of professional preparer units sold.
Tax Preparation operating income increased approximately $6.0 million, consisting of the $21.6 million increase in
revenue and offset by a $15.5 million increase in operating expenses. The increase in Tax Preparation segment operating
expenses was primarily due to higher spending on marketing, higher professional services fees mostly related to marketing and
development projects, higher data center costs related to software support and maintenance fees, increases in growth initiative
investments, and higher personnel expenses.
Year ended December 31, 2016 compared with year ended December 31, 2015
Tax Preparation revenue increased approximately $21.7 million primarily due to growth in revenue earned from online
consumer users, increased sales of ancillary services, and increased sales of our professional tax preparer software. Online
consumer revenue grew, despite a decrease in e-files, due to growth in average revenue per user, primarily resulting from the
re-packaging of our offerings and related price increases for tax year 2015. Revenue derived from professional tax preparers
increased, primarily due to an increase in the number of professional preparer units sold.
Tax Preparation operating income increased approximately $9.9 million, consisting of the $21.7 million increase in
revenue and offset by an $11.7 million increase in operating expenses. The increase in Tax Preparation segment operating
expenses primarily was due to increased spending on marketing, an increase in personnel expenses resulting from overall
higher headcount supporting most functions, increased data center costs mostly related to third-party technology fees (software
support and maintenance, bandwidth and hosting, and professional services), increased third-party costs associated with
additional features in the current year offerings, and an increase in professional services fees mostly related to development
projects.
37
Corporate-Level Activity
(In thousands)
Operating expenses
Stock-based compensation
Acquisition-related costs
CEO separation-related costs
Depreciation
Amortization of acquired intangible
assets
Restructuring
2017
Change
2016
Change
2015
Years ended December 31,
$
18,999
$
1,249
$
$
22,907
$
11,653
—
—
4,137
34,002
3,101
3,908
(2,475)
(391)
—
(408)
(141)
(769)
(276) $
14,128
391
—
4,545
34,143
3,870
5,434
(10,597)
(1,769)
2,258
13,840
3,870
17,750
8,694
10,988
1,769
2,287
20,303
—
Total corporate-level activity
$
75,800
$
76,076
$
14,285
$
61,791
Certain corporate-level activity is not allocated to our segments, including certain general and administrative costs
(including personnel and overhead costs), stock-based compensation, acquisition-related costs, separation-related costs related
to the departure of our CEO in 2016, depreciation, amortization of acquired intangible assets, and restructuring. For further
detail, refer to segment information appearing in "Note 13: Segment Information" of the Notes to Consolidated Financial
Statements in Part II Item 8 of this report.
Year ended December 31, 2017 compared with year ended December 31, 2016
Operating expenses included in corporate-level activity increased primarily due to Strategic Transformation Costs and
costs associated with leadership changes at HD Vest. Strategic Transformation Costs primarily related to the relocation cost of
our corporate headquarters and are not classified as restructuring. These costs are associated with transitioning of roles such as
overlap in staffing and recruiting search fees.
Stock-based compensation decreased primarily due to fewer grants in the current year and higher expense recognized in
the prior year related to grants made to HD Vest employees in 2016 that were made in connection with the HD Vest acquisition,
partially offset by activity within our Tax Preparation business due to prior forfeitures.
Acquisition-related costs, depreciation and amortization of acquired intangible assets were comparable to the prior
period.
Restructuring relates to expenses incurred in connection with the relocation of our corporate headquarters in 2017.
Further detail is provided under the "Operating Expenses - Restructuring" section of the management's discussion and analysis
of financial condition and results of operations below.
Year ended December 31, 2016 compared with year ended December 31, 2015
Operating expenses included in corporate-level activity increased primarily due to a $1.3 million net increase in personnel
expenses, mainly due to Strategic Transformation costs, which primarily consisted of recruiting fees in connection with the
move of our headquarters, offset by lower headcount.
Stock-based compensation increased primarily due to a net increase in stock award grants (including to HD Vest
employees in connection with the HD Vest acquisition).
Acquisition-related costs include professional services fees and other direct transaction costs and changes in the fair value
of contingent consideration liabilities related to acquired companies. The decrease relates to professional services fees and
other direct transaction costs incurred in 2016 related to the HD Vest acquisition, offset by changes in the fair value of the
SimpleTax contingent consideration liability, which was revalued in the second quarter of 2016.
On October 14, 2015, we announced the departure of our former chief executive officer. His departure became effective
March 31, 2016. In conjunction with that 2015 announcement, we recorded $1.8 million of separation-related costs in 2015,
most of which were pursuant to his employment agreement and were paid in April 2016.
Depreciation increased primarily due to depreciation expense on HD Vest fixed assets.
38
Amortization of acquired intangible assets increased primarily due to amortization expense on HD Vest acquisition-
related intangible assets, offset by lower amortization expense associated with concluding the useful life of certain TaxAct
acquisition-related intangible assets during 2016.
Restructuring relates to expenses incurred in connection with the relocation of our corporate headquarters in 2017.
Further detail is provided under the "Operating Expenses - Restructuring" section of the management's discussion and analysis
of financial condition and results of operations below.
Cost of Revenue
OPERATING EXPENSES
(In thousands, except percentages)
Years ended December 31,
2017
Change
2016
Change
2015
Wealth management services cost of
revenue
$
235,859
$
21,863
$
213,996
$
213,996
$
Tax preparation services cost of revenue
Amortization of acquired technology
10,018
195
Total cost of revenue
Percentage of revenue
$
246,072
$
48%
1,650
(617)
22,896
8,368
812
$
223,176
$
49%
2,201
(6,734)
209,463
—
6,167
7,546
$
13,713
12%
We record the cost of revenue for sales of services when the related revenue is recognized. Services cost of revenue
consists of costs related to our Wealth Management and Tax Preparation businesses, which include commissions to financial
advisors, third-party costs, and costs associated with the technical support team and the operation of our data centers. Data
center costs include personnel expenses (salaries, stock-based compensation, benefits, and other employee-related costs), the
cost of temporary help and contractors, professional services fees (which include technology project consulting fees), software
support and maintenance, bandwidth and hosting costs, and depreciation. Cost of revenue also includes the amortization of
acquired technology.
Year ended December 31, 2017 compared with year ended December 31, 2016
Wealth management services cost of revenue increased primarily due to an increase in commissions paid to our financial
advisors, which fluctuated in proportion to the change in underlying commission and advisory revenues earned on client
accounts, and higher stock-based compensation costs related to grants to certain HD Vest financial advisors made during 2017.
Tax preparation services cost of revenue increased primarily due to an increase in data center costs related to software
support and maintenance fees.
Amortization of acquired technology decreased due to amortization expense associated with concluding the useful life of
certain TaxAct acquisition-related intangible assets during 2016.
Year ended December 31, 2016 compared with year ended December 31, 2015
Wealth management services cost of revenue increased due to the timing of the HD Vest acquisition.
Tax preparation services cost of revenue increased primarily due to higher data center costs mostly related to third-party
technology fees (software support and maintenance, bandwidth and hosting, and professional services) and higher third-party
costs associated with additional features in the current year offerings.
Amortization of acquired technology decreased due to amortization expense associated with concluding the useful life of
certain TaxAct acquisition-related intangible assets during 2016.
39
Engineering and Technology
(In thousands, except percentages)
Engineering and technology
Percentage of revenue
Years ended December 31,
2017
19,614
$
Change
$
1,834
$
4%
2016
17,780
4%
Change
2015
$
12,673
$
5,107
4%
Engineering and technology expenses are associated with the research, development, support, and ongoing enhancements
of our offerings, which include personnel expenses (salaries, stock-based compensation, benefits, and other employee-related
costs), the cost of temporary help and contractors, software support and maintenance, bandwidth and hosting, and professional
services fees.
Year ended December 31, 2017 compared with year ended December 31, 2016
Engineering and technology expenses increased primarily due to an increase in consulting and professional services fees,
mostly related to Tax Preparation development projects.
Year ended December 31, 2016 compared with year ended December 31, 2015
Engineering and technology expenses increased, and $8.7 million of this increase was attributable to HD Vest (excluding
stock-based compensation) and related to the timing of the HD Vest acquisition. The remaining increase primarily was due to a
$3.1 million increase in personnel expenses, mainly related to higher headcount in our Tax Preparation business and higher
stock-based compensation due to an increase in stock award grants (including to HD Vest employees), and, to a lesser extent,
an increase in professional services fees mostly related to Tax Preparation development projects.
Sales and Marketing
(In thousands, except percentages)
Years ended December 31,
Sales and marketing
Percentage of revenue
2017
102,798
$
Change
$
13,438
$
20%
2016
89,360
20%
Change
$
43,506
$
2015
45,854
39%
Sales and marketing expenses consist principally of personnel expenses (salaries, stock-based compensation, benefits,
and other employee-related costs) and the cost of temporary help and contractors for those engaged in marketing, selling, and
sales support operations activities, marketing expenses associated with our HD Vest and TaxAct businesses (which primarily
include television, radio, online, text, email, and sponsorship channels), and back office processing support expenses associated
with our HD Vest business (occupancy and general office expenses, regulatory fees, and license fees).
Year ended December 31, 2017 compared with year ended December 31, 2016
Sales and marketing expenses increased primarily due to a $7.8 million increase in marketing expenses and a $3.8 million
increase in personnel expenses. The increase in marketing expenses was driven by increased marketing in our Tax Preparation
business. Personnel expenses increased primarily due to the standardization of employee benefits across our businesses.
Year ended December 31, 2016 compared with year ended December 31, 2015
Sales and marketing expenses increased, and $34.9 million of this increase was attributable to HD Vest (excluding stock-
based compensation) and related to the timing of the HD Vest acquisition. The remaining increase primarily was due to a $5.6
million increase in marketing expenses and a $2.8 million increase in personnel expenses. The increase in marketing expenses
was driven by increased marketing in our Tax Preparation business. Personnel expenses increased primarily due to higher
stock-based compensation with an increase in stock award grants (including to HD Vest employees) and higher headcount in
our Tax Preparation business.
40
General and Administrative
(In thousands, except percentages)
General and administrative
Percentage of revenue
Years ended December 31,
2017
52,668
$
Change
$
5,272
$
10%
2016
47,396
10%
Change
$
3,833
$
2015
43,563
37%
General and administrative (“G&A”) expenses consist primarily of personnel expenses (salaries, stock-based
compensation, benefits, and other employee-related costs), the cost of temporary help and contractors, professional services
fees (which include legal, audit, and tax fees), general business development and management expenses, occupancy and
general office expenses, business taxes, and insurance expenses.
Year ended December 31, 2017 compared with year ended December 31, 2016
G&A expenses increased primarily due to a $4.9 million net increase in personnel expenses, mainly related to Strategic
Transformation Costs and costs associated with leadership changes at HD Vest, offset by lower stock-based compensation due
to fewer grants in the current year and higher expense recognized in the prior year related to the timing of grants.
Year ended December 31, 2016 compared with year ended December 31, 2015
G&A expenses increased, and $12.7 million of this increase was attributable to HD Vest (excluding stock-based
compensation) and related to the timing of the HD Vest acquisition. There also was a $1.6 million net increase in personnel
expenses. This net increase in personnel expenses included higher stock-based compensation, mainly related to a net increase
in stock award grants (including to HD Vest employees), and costs incurred as part of our Strategic Transformation, which
primarily consisted of recruiting fees, offset by $1.8 million of separation-related costs incurred in the prior year in connection
with the departure of our former chief executive officer and lower headcount. These increases were offset by a $0.4 million net
decrease in acquisition-related costs due to professional services fees and other direct transaction costs incurred in the prior
year related to the HD Vest acquisition, offset by changes in the fair value of the SimpleTax contingent consideration liability,
which was revalued in the second quarter of 2016.
Depreciation and Amortization of Acquired Intangible Assets
(In thousands, except percentages)
Years ended December 31,
Depreciation
Amortization of acquired intangible
assets
Total
Percentage of revenue
2017
Change
2016
Change
2015
$
$
3,460
33,807
37,267
$
$
7%
(421) $
3,881
476
55
$
33,331
37,212
$
$
2,360
$
1,521
20,574
22,934
$
12,757
14,278
8%
12%
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. Amortization of acquired intangible assets primarily
includes the amortization of customer relationships, which are amortized over their estimated lives.
Year ended December 31, 2017 compared with year ended December 31, 2016
Depreciation and amortization of acquired intangible assets were comparable to the prior year.
Year ended December 31, 2016 compared with year ended December 31, 2015
Depreciation increased primarily due to depreciation expense on HD Vest fixed assets.
Amortization of acquired intangible assets increased primarily due to amortization expense on HD Vest acquisition-
related intangible assets.
41
Restructuring
(In thousands, except percentages)
Years ended December 31,
Restructuring
Percentage of revenue
2017
Change
2016
Change
2015
$
3,101
$
(769) $
3,870
$
3,870
$
1%
1%
—
—%
In connection with the Strategic Transformation, including the relocation of our headquarters, we have incurred
restructuring costs of approximately $7.0 million, which includes all costs associated with our non-cancelable operating lease.
While the relocation and the related costs were substantially completed by June 2017, the Company expects some costs through
early 2018, primarily related to employees who will continue to provide service through that time period.
See "Note 5: Restructuring" of the Notes to Consolidated Financial Statements in Part II Item 8 of this report for
additional information on restructuring.
Other Loss, Net
(In thousands)
Interest income
Interest expense
Amortization of debt issuance costs
Accretion of debt discounts
Loss on debt extinguishment and
modification expense
Gain on third party bankruptcy
settlement
Other
Other loss, net
2017
Change
2016
Change
2015
Years ended December 31,
$
(110) $
(29) $
(81) $
528
$
21,211
1,089
1,947
20,445
(116)
85
(11,213)
(751)
(2,743)
19,409
56
41
32,424
1,840
4,690
1,036
(172)
44
23,380
707
824
638
956
206
$
44,551
$
4,770
$
39,781
$
27,239
$
(609)
9,044
1,133
3,866
398
(1,128)
(162)
12,542
Year ended December 31, 2017 compared with year ended December 31, 2016
The decrease in interest expense, amortization of debt issuance costs, and accretion of debt discounts primarily related to
lower balances in the TaxAct - HD Vest 2015 credit facility and the Notes due to prepayments on a portion of the TaxAct - HD
Vest 2015 credit facility in 2017 and 2016 and the redemption of all of the Notes in the second quarter of 2017. In 2017, the
applicable interest rate margin of the Blucora senior secured credit facilities was repriced and lowered to 3.0% for Eurodollar
Rate loans and 2.0% for ABR loans. This repricing should decrease future annual interest expense by approximately $2.0
million per year.
The gain on third party bankruptcy settlement related to amounts received in connection with ongoing distributions from
the Lehman Brothers estate, of which we are a creditor.
See "Note 9: Debt" of the Notes to Consolidated Financial Statements in Part II Item 8 of this report for additional
information on the "Loss on debt extinguishment and modification expense."
Year ended December 31, 2016 compared with year ended December 31, 2015
The increase in interest expense, amortization of debt issuance costs, and accretion of debt discounts primarily related to
the TaxAct - HD Vest 2015 credit facility, which was entered into in December 2015, offset by a lower balance on the Notes, a
portion of which were repurchased during the first quarter of 2016.
The loss on debt extinguishment and modification expense related to the prepayment of a portion of the TaxAct - HD Vest
2015 credit facility in 2016, which resulted in the write-down of a portion of the unamortized debt discount and issuance costs.
This was offset by a gain on debt extinguishment and modification expense related to the repurchase of a portion of the Notes
below par value during the first quarter of 2016. Further detail is above.
42
Income Taxes
During 2017, we recorded an income tax benefit of $25.9 million. Income tax differed from taxes at the statutory rates
primarily due to the January 1, 2017 implementation of Accounting Standards Update ("ASU") 2016-09 on stock-based
compensation (see "Note 2: Summary of Significant Accounting Policies" of the Notes to Consolidated Financial Statements in
Part II Item 8 of this report for additional information) and the impact of "H.R. 1", formerly known as the Tax Cuts and Jobs
Act (the "Tax Legislation"), which President Donald Trump signed into law on December 22, 2017.
The Tax Legislation, which was effective January 1, 2018, significantly revised the U.S. tax code by, among other things,
lowering the corporate income tax rate from 35% to 21%. As a result of the reduction in the corporate income tax rate, we re-
valued our net deferred tax liabilities during the year ended December 31, 2017. The re-measurement of our deferred tax assets
and liabilities resulted in a reduction in the value of our net deferred tax liabilities of approximately $21.4 million, which is
recorded as additional income tax benefit in 2017. For 2018, we expect our GAAP effective tax rate to be in the range of 5 to
10 percent, primarily driven by the release of the current portion of valuation allowances.
The Tax Legislation also repealed corporate alternative minimum tax ("AMT") for tax years beginning January 1, 2018,
and provides that existing AMT credit carryovers are refundable beginning in 2018. We have approximately $10.9 million of
AMT credit carryovers that are expected to be fully refunded by 2022. Additionally, the change in tax law affected changes to
statutes under I.R.C. 162(m) related to the deduction of compensation of officers, which may limit the total amount benefited
by the Company in future years.
The impact of the Tax Legislation on our 2018 effective tax rate will depend on numerous factors and assumptions.
Based on preliminary information, given the numerous net operating losses available and small international footprint, the
change in tax law is not expected to significantly impact our income tax provision. The foregoing is based on information
available as of the date of this report and is subject to change due to a variety of factors, including, among other things, (i)
management’s further assessment of the Tax Legislation and related regulatory guidance, (ii) guidance that may be issued, and
(iii) actions that we may take as a result of the Tax Legislation. For further discussion of the risks related to the Tax Legislation,
see the paragraph in our Risk Factors (Part I Item IA of this report) under the heading "We may be negatively impacted by the
recently passed Tax Cuts and Jobs Act or by any future changes in tax laws."
During 2016, we recorded an income tax benefit of $1.3 million. Income tax differed from taxes at the statutory rates
primarily due to the domestic manufacturing deduction, offset by non-deductible compensation and state income taxes.
During 2015, we recorded an income tax benefit of $4.6 million. Income tax differed from taxes at the statutory rates
primarily due to the non-deductible acquisition-related transaction costs.
At December 31, 2017, we had gross temporary differences representing future tax deductions of $684.1 million, which
represented deferred tax assets primarily comprised of $520.3 million of federal net operating loss carryforwards. We have
applied a valuation allowance against the net operating loss carryforwards and certain other deferred tax assets. If in the future,
we determine that any additional portion of the deferred tax assets is more likely than not to be realized, we will record a
benefit to the income statement. We currently estimate that approximately $273.8 million and $144.6 million of federal net
operating loss carryforwards will expire in 2020 and 2021, respectively.
Discontinued Operations, Net of Income Taxes
(In thousands)
Years ended December 31,
Discontinued operations, net of income
taxes
$
— $
63,121
$
(63,121) $
(35,773) $
(27,348)
2017
Change
2016
Change
2015
On October 14, 2015, we announced our Strategic Transformation, which included plans to divest the Search and Content
and E-Commerce businesses. Our results of operations reflect the Search and Content and E-Commerce businesses as
discontinued operations for all periods presented. Amounts in discontinued operations include previously unallocated
depreciation, amortization, stock-based compensation, income taxes, and other corporate expenses that were attributable to the
Search and Content and E-Commerce businesses. We completed both divestitures in 2016:
• On November 17, 2016, we closed on an agreement with YFC, under which YFC acquired the E-Commerce
business for $40.5 million, which included a working capital adjustment. As a result, we recognized a $52.2 million
loss on sale of discontinued operations.
43
• On August 9, 2016, we closed on an agreement with OpenMail, under which OpenMail acquired substantially all of
the assets and assumed certain specified liabilities of the Search and Content business for $45.2 million, which
included a working capital adjustment. As a result, we recognized a $21.6 million loss on sale of discontinued
operations.
In the fourth quarter of 2015, we recorded goodwill impairments of $15.1 million and $33.8 million related to the Search
and Content and E-Commerce reporting units, respectively, and trade name impairments of $5.9 million and $4.2 million
related to the HSW and Monoprice trade names, respectively.
See "Note 4: Discontinued Operations" of the Notes to Consolidated Financial Statements in Part II Item 8 of this report
for additional information on discontinued operations.
NON-GAAP FINANCIAL MEASURES
Adjusted 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, amortization of acquired intangible
assets (including acquired technology), restructuring, other loss, net, the impact of noncontrolling interests, income tax expense
(benefit), the effects of discontinued operations, acquisition-related costs and CEO separation-related costs. Restructuring costs
relate to the move of our corporate headquarters, which was announced in the fourth quarter of 2016. Acquisition-related costs
include professional services fees and other direct transaction costs and changes in the fair value of contingent consideration
liabilities related to acquired companies. The SimpleTax acquisition that was completed in 2015 included contingent
consideration, for which the fair value of that liability was revalued in the second quarter of 2016. For further detail, see "Note
9: Debt" of the Notes to Consolidated Financial Statements in Part II Item 8 of this report.
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. 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)
Net income (loss) attributable to Blucora, Inc.
Stock-based compensation
Depreciation and amortization of acquired intangible assets
Restructuring
Other loss, net
Net income attributable to noncontrolling interests
Income tax expense (benefit)
Discontinued operations, net of income taxes
Acquisition-related costs
CEO separation-related costs
Adjusted EBITDA
Years ended December 31,
2017
2016
2015
$
27,039
$
11,653
38,139
3,101
44,551
2,337
(25,890)
—
—
—
(65,158) $
14,128
38,688
3,870
39,781
658
(1,285)
63,121
391
—
$
100,930
$
94,194
$
(40,074)
8,694
22,590
—
12,542
—
(4,623)
27,348
10,988
1,769
39,234
Year ended December 31, 2017 compared with year ended December 31, 2016
The increase in Adjusted EBITDA primarily was due to increases in segment operating income of $4.6 million and $6.0
million related to our Wealth Management and Tax Preparation segments, respectively. Offsetting the increase in Adjusted
44
EBITDA was a $3.9 million increase in corporate operating expenses not allocated to the segments primarily related to costs
incurred as part of our Strategic Transformation, which related to the relocation cost of our corporate headquarters, and costs
associated with transitioning of roles such as overlap in staffing and recruiting search fees.
Year ended December 31, 2016 compared with year ended December 31, 2015
The increase in Adjusted EBITDA primarily was due to increases in segment operating income of $46.3 million and $9.9
million related to our Wealth Management and Tax Preparation segments, respectively. Offsetting the increase in Adjusted
EBITDA was a $1.2 million increase in corporate operating expenses not allocated to the segments primarily related to costs
incurred as part of our Strategic Transformation, which mainly consisted of recruiting fees.
Non-GAAP net income: We define non-GAAP net income (loss) as net income (loss) attributable to Blucora, Inc.,
determined in accordance with GAAP, excluding the effects of discontinued operations, stock-based compensation,
amortization of acquired intangible assets (including acquired technology), accretion of debt discount and accelerated accretion
of debt discount on the Notes, gain on the Notes repurchased, write-off of debt discount and debt issuance costs on the Notes
that were redeemed and the terminated TaxAct - HD Vest 2015 credit facility, acquisition-related costs (described further under
Adjusted EBITDA above), restructuring costs (described further under Adjusted EBITDA above), the impact of noncontrolling
interests, the related cash tax impact of those adjustments, and non-cash income taxes. The write-off of debt discount and debt
issuance costs on the terminated Notes and the closed TaxAct - HD Vest 2015 credit facility relates to the debt refinancing that
occurred in the second quarter of 2017. 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 expire, if unutilized, between 2020 and 2024.
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
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) 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). Other
companies may calculate non-GAAP net income differently, and, therefore, our non-GAAP net income may not be comparable
to similarly titled measures of other companies. A reconciliation of our non-GAAP net income to net income attributable to
Blucora, Inc., which we believe to be the most comparable GAAP measure, is presented below:
45
Years ended December 31,
2017
2016
2015
(In thousands, except per share amounts)
Net income (loss) attributable to Blucora, Inc.
Discontinued operations, net of income taxes
Stock-based compensation
Amortization of acquired intangible assets
Accretion of debt discount on Convertible Senior Notes
Accelerated accretion of debt discount on Convertible Senior Notes
Gain on the Notes repurchased
Write-off of debt issuance costs on closed TaxAct 2013 credit facility
Write-off of debt discount and debt issuance costs on terminated
Convertible Senior Notes
Write-off of debt discount and debt issuance costs on closed TaxAct - HD
Vest 2015 credit facility
Acquisition-related costs
CEO separation-related costs
Restructuring
Impact of noncontrolling interests
Cash tax impact of adjustments to GAAP net income
Non-cash income tax benefit
Non-GAAP net income
Per diluted share:
Net loss attributable to Blucora, Inc. (1)
Discontinued operations, net of income taxes
Stock-based compensation
Amortization of acquired intangible assets
Accretion of debt discount on Convertible Senior Notes
Accelerated accretion of debt discount on Convertible Senior Notes
Gain on Convertible Senior Notes repurchased
Write-off of debt discount and debt issuance costs on terminated
Convertible Senior Notes
Write-off of debt discount and debt issuance costs on closed TaxAct - HD
Vest 2015 credit facility
Acquisition-related costs
CEO separation-related costs
Restructuring
Impact of noncontrolling interests
Cash tax impact of adjustments to GAAP net income
Non-cash income tax benefit
Non-GAAP net income
Weighted average shares outstanding used in computing per diluted share
$
$
27,039
$
—
11,653
34,002
1,567
—
—
—
6,715
9,593
—
—
3,101
2,337
(6)
(26,853)
69,148
$
0.57
$
$
$
—
0.25
0.72
0.03
—
—
0.14
0.20
—
—
0.07
0.05
(65,158) $
63,121
14,128
34,143
3,666
1,628
(7,724)
—
—
—
391
—
3,870
658
175
(3,802)
45,096
$
(1.53) $
1.48
0.33
0.80
0.09
0.04
(0.18)
—
—
0.01
—
0.09
0.02
(40,074)
27,348
8,694
20,303
3,866
—
—
398
—
—
10,988
1,769
—
—
(236)
(4,857)
28,199
(0.98)
0.68
0.21
0.50
0.09
—
—
—
—
0.27
0.04
—
—
(0.01)
(0.12)
0.69
0.00
(0.57)
1.46
$
0.00
(0.09)
1.06
$
amounts
40,959
(1) Any difference in "per diluted share" between this table and the consolidated statements of comprehensive income is due to
using different weighted average shares outstanding in the event that there is GAAP net loss but non-GAAP net income and
vice versa.
42,686
47,211
46
Year ended December 31, 2017 compared with year ended December 31, 2016
The increase in non-GAAP net income primarily was due to increases in segment operating income of $4.6 million and
$6.0 million related to our Wealth Management and Tax Preparation segments, respectively. The increase in non-GAAP net
income was also due to (i) a $12.6 million decrease in interest expense, amortization of debt issuance costs, and accretion of
debt discounts, mainly related to the TaxAct - HD Vest 2015 credit facility, which was entered into in December 2015 and
terminated in the second quarter of 2017, (ii) a $3.0 million loss on debt extinguishment and modification expense, mainly
related to the prepayment of a portion of the TaxAct - HD Vest 2015 credit facility in 2016, (iii) a $0.4 million decrease in
depreciation expense, mainly related to depreciation expense on HD Vest fixed assets, and (iv) a $1.4 million decrease in cash
income tax expense, mainly related to the addition of HD Vest. These increases were offset by a $3.9 million increase in
corporate operating expenses not allocated to the segments primarily related to costs incurred as part of our Strategic
Transformation, which related to the relocation cost of our corporate headquarters, and costs associated with transitioning of
roles such as overlap in staffing and recruiting search fees.
Year ended December 31, 2016 compared with year ended December 31, 2015
The increase in non-GAAP net income primarily was due to increases in segment operating income of $4.6 million and
$6.0 million related to our Wealth Management and Tax Preparation segments, respectively. This was offset by (i) a $12.6
million decrease in interest expense, amortization of debt issuance costs, and accretion of debt discounts, mainly related to the
TaxAct - HD Vest 2015 credit facility, which was entered into in December 2015, (ii) a $3.0 million loss on debt
extinguishment and modification expense, mainly related to the prepayment of a portion of the TaxAct - HD Vest 2015 credit
facility in 2016, (iii) a $0.4 million decrease in depreciation expense, mainly related to depreciation expense on HD Vest fixed
assets, (iv) a $1.4 million decrease in cash income tax expense, mainly related to the addition of HD Vest, (v) a $3.9 million
increase in corporate operating expenses not allocated to the segments primarily related to costs incurred as part of our
Strategic Transformation, which mainly consisted of recruiting fees, and (vi) a $0.1 million decrease in gain on third party
bankruptcy settlement.
Cash and Cash Equivalents
LIQUIDITY AND CAPITAL RESOURCES
Our principal source of liquidity is our cash and cash equivalents. As of December 31, 2017, we had cash and cash
equivalents of $60.0 million. Our HD Vest broker-dealer subsidiary operates in a highly regulated industry and is subject to
various regulatory capital requirements. Failure to meet minimum capital requirements can initiate certain mandatory and
possible additional discretionary actions by regulators that, if undertaken, could have substantial monetary and non-monetary
impacts to HD Vest's operations. As of December 31, 2017, HD Vest met all capital adequacy requirements to which it was
subject.
We generally invest our excess cash in high quality marketable investments. These investments generally include debt
instruments issued by the U.S. federal government and its agencies, international governments, municipalities and publicly-
held corporations, as well as commercial paper, insured time deposits with commercial banks, and money market funds
invested in securities issued by agencies of the U.S., although specific holdings can vary from period to period depending upon
our cash requirements. Our financial instrument investments held at December 31, 2017 had minimal default risk and short-
term maturities.
We have financed our operations primarily from cash provided by operating activities. Accordingly, we believe that the
cash generated from our operations and the cash and cash equivalents we have on hand will be sufficient to meet our operating,
working capital, regulatory capital requirements at our broker-dealer subsidiary, and capital expenditure requirements for at
least the next 12 months. However, the underlying levels of revenues and expenses that we project may not prove to be
accurate. For further discussion of the risks to our business related to liquidity, see the paragraph in our Risk Factors (Part I
Item 1A of this report) under the heading "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."
Use of Cash
We may use our cash and cash equivalents balance in the future on investment in our current businesses, for repayment of
debt, for acquiring companies or assets that complement our Wealth Management and Tax Preparation businesses, or for
returning capital to shareholders.
47
On May 22, 2017, we entered into a credit agreement with a syndicate of lenders in order to (a) refinance the TaxAct -
HD Vest 2015 credit facility, (b) redeem our Notes that were outstanding at the time, and (c) provide a term loan and revolving
line of credit for future working capital, capital expenditure and general business purposes. Consequently, the TaxAct - HD Vest
2015 credit facility was repaid in full and the commitments thereunder were terminated. The Blucora senior secured credit
facilities in the aggregate committed amount of $425.0 million consist of a committed $50.0 million revolving credit facility
(including a letter of credit sub-facility), and a $375.0 million term loan facility. The final maturity dates of the revolving credit
loan and term loan are May 22, 2022 and May 22, 2024, respectively. Obligations under the Blucora senior secured credit
facility are guaranteed by certain of Blucora's subsidiaries and secured by the assets of Blucora and those subsidiaries.
The credit facility includes 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 December 31,
2017. We initially borrowed $375.0 million under the term loan and have made prepayments of $30.0 million towards the term
loan. We have not borrowed any amounts under the revolving credit loan and do not have any other debt outstanding. For
further detail, see "Note 9: Debt" of the Notes to Consolidated Financial Statements in Part II Item 8 of this report.
Related to the TaxAct - HD Vest 2015 credit facility, we had repayment activity of $64.0 million and $140.0 million
during the years ended December 31, 2017 and 2016, respectively. Related to the Notes, we repurchased $28.4 million of the
Notes for cash of $20.7 million during 2016. For further detail, see "Note 9: Debt" of the Notes to Unaudited Condensed
Consolidated Financial Statements in Part II Item 8 of this report.
On July 2, 2015, TaxAct acquired SimpleTax, which included additional consideration of up to C$4.6 million (with C$
indicating Canadian dollars and amounting to approximately $3.7 million based on the acquisition-date exchange rate). The
related payments are contingent upon product availability and revenue performance over a three-year period and are expected
to occur annually over that period. The first payment was made in the first quarter of 2017, and the remaining payments of
$2.7 million are expected through 2019. For further detail, see "Note 7: Fair Value Measurements" of the Notes to
Consolidated Financial Statements in Part II Item 8 of this report.
On October 14, 2015, we announced our Strategic Transformation, which refers to our transformation into a technology-
enabled financial solutions company comprised of TaxAct and HD Vest, the divestitures of our Search and Content and E-
Commerce businesses, and the relocation of corporate headquarters from Bellevue, Washington to Irving, Texas. See the
"Strategic Transformation" subsection above for additional detail regarding the related use of cash.
Related to the acquisition of HD Vest, we paid $613.7 million (after a $1.8 million working capital adjustment in the first
quarter of 2016) in cash, which was funded by a combination of cash on hand and the TaxAct - HD Vest 2015 credit facility.
The credit facility consisted of a $25.0 million revolving credit loan and a $400.0 million term loan for an aggregate $425.0
million credit facility. The final maturity dates of the revolving credit loan and term loan were December 31, 2020 and
December 31, 2022, respectively. The interest rates on the revolving credit loan and term loan were variable. The credit
facility includes financial and operating covenants with respect to certain ratios, including a net leverage to EBITDA ratio,
which are defined further in the agreement. We were in compliance with these covenants as of December 31, 2017. TaxAct
and HD Vest initially borrowed $400.0 million under the term loan and had repayment activity of $260.0 million in 2017. For
further detail, see "Note 3: Business Combinations" and "Note 9: Debt" of the Notes to Consolidated Financial Statements in
Part II Item 8 of this report.
On August 30, 2013, TaxAct entered into an agreement to refinance a 2012 credit facility on more favorable terms.
TaxAct had net repayment activity of $51.9 million in 2015. This credit facility was repaid in full in the second quarter of 2015
and subsequently closed.
In the third quarter of 2018 we expect to commence our new clearing services relationship with Fidelity Clearing &
Custody Solutions, pursuant to the agreement we executed during 2017. We expect the new clearing relationship to provide
tangible benefits to our advisors and customers in the form of improved technology, product offerings and service. We currently
expect that this relationship will generate between approximately $60.0 and $100.0 million of incremental Wealth Management
segment income over the ten years following the commencement of this relationship in late 2018.
48
Contractual Obligations and Commitments
Our contractual obligations and commitments are as follows for years ending December 31:
(In thousands)
Operating lease commitments:
2018
2019
2020
2021
2022
Thereafter
Total
Operating lease obligations
$
4,201
$
4,281
$
Sublease income
Net operating lease
commitments
Purchase commitments
Debt commitments
Interest payable
Acquisition-related contingent
consideration liability
Total
(1,265)
(1,288)
2,936
5,528
—
2,993
3,600
2,000
3,946
(991)
2,955
3,600
3,500
$
2,493
$
1,979
$
1,678
$
—
—
—
2,493
2,100
3,500
1,979
600
3,500
1,678
3,400
332,500
20,584
18,578
(3,544)
15,034
18,828
345,000
95,572
15,172
15,157
15,068
14,872
14,719
1,304
1,385
—
—
—
—
2,689
$
24,940
$
25,135
$
25,123
$
22,965
$
20,798
$ 358,162
$ 477,123
For further detail see "Note 10: Commitments and Contingencies" of the Notes to Consolidated Financial Statements in
Part II Item 8 of this report.
Off-balance Sheet Arrangements
We have no off-balance sheet arrangements other than operating leases.
Unrecognized Tax Benefits
The above table does not reflect unrecognized tax benefits of approximately $4.2 million, the timing of which is
uncertain. For additional discussion on unrecognized tax benefits see "Note 16: Income Taxes" of the Notes to Consolidated
Financial Statements in Part II Item 8 of this report.
Cash Flows
Our cash flows were comprised of the following:
(In thousands)
Years ended December 31,
2017
2016
2015
Net cash provided by operating activities from continuing operations
$
72,846
$
Net cash provided (used) by investing activities from continuing operations
Net cash provided (used) by financing activities from continuing operations
Net cash provided (used) by continuing operations
Net cash provided by discontinued operations
Effect of exchange rate changes on cash and cash equivalents
2,053
(68,562)
6,337
1,028
78
Net increase (decrease) in cash and cash equivalents
$
7,443
$
$
85,970
(1,560)
(162,001)
(77,591)
72,655
(26)
(4,962) $
24,308
(332,517)
320,652
12,443
4,586
(17)
17,012
Net cash from the operating activities of continuing operations: Net cash from the operating activities of continuing
operations consists of income (loss) from continuing operations, offset by certain non-cash adjustments, and changes in our
working capital.
Net cash provided by operating activities was $72.8 million, $86.0 million, and $24.3 million for the years ended
December 31, 2017, 2016, and 2015, respectively. The activity in 2017 included a $(15.3) million working capital contribution
and approximately $88.1 million of income from continuing operations (offset by non-cash adjustments). The working capital
contribution was driven by accrued expenses, including accrued interest, and the expected realization (through 2022) of $10.9
million of repealed corporate AMT credit carryovers, and restructuring activities.
49
The activity in 2016 included an $44.8 million working capital contribution and approximately $41.2 million of non-cash
adjustments and a loss from continuing operations. The working capital contribution continued to be driven by accrued
expenses and the impact of excess tax benefits from stock-based activity primarily due to utilizing equity net operating loss
carryforwards from prior years. In addition, we had placed into escrow $20.0 million of additional consideration that was
contingent upon HD Vest's 2015 earnings performance, and that amount was returned to us in the first quarter of 2016 since it
was not achieved (see "Note 3: Business Combinations" of the Notes to Consolidated Financial Statements in Part II Item 8 of
this report for additional information). Lastly, the timing of TaxAct's spending on marketing campaigns for the upcoming tax
season and the addition of HD Vest provided further working capital contribution during the period.
The activity in 2015 included a $11.2 million working capital contribution and approximately $13.1 million of non-cash
adjustments and a loss from continuing operations. The working capital contribution was driven by accrued expenses and the
impact of excess tax benefits from stock-based activity, and also included separation-related costs accrued in connection with
the upcoming departure of our chief executive officer that occurred in 2016.
Net cash from the investing activities of continuing operations: Net cash from the investing activities of continuing
operations primarily 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 tend to fluctuate from
period to period primarily based upon the level of acquisition activity.
Net cash used by investing activities was $2.1 million, $1.6 million, and $332.5 million for the years ended December 31,
2017, 2016, and 2015, respectively. The activity in 2017 primarily consisted of net cash inflows on our available-for-sale
investments of $7.1 million offset by approximately offset by $5.0 million in purchases of property and equipment. The activity
in 2016 primarily consisted of $3.8 million in purchases of property and equipment and payment of the $1.8 million final
working capital adjustment on the HD Vest acquisition, offset by net cash inflows on our available-for-sale investments of $4.0
million. The activity in 2015 primarily consisted of the acquisitions of HD Vest and SimpleTax for a combined $573.4 million
and $1.5 million in purchases of property and equipment, offset by net cash inflows on our available-for-sale investments of
$238.7 million.
Net cash from the financing activities of continuing operations: Net cash from the financing activities of continuing
operations primarily consists of transactions related to the issuance of debt and stock. Our financing activities tend to fluctuate
from period-to-period based upon our financing needs due to the level of acquisition activity and market conditions that present
favorable financing opportunities.
Net cash used by financing activities was $68.6 million for the year ended December 31, 2017. The activity in 2017
primarily consisted of payments of $290.0 million in connection with the termination of the TaxAct - HD Vest credit facility,
$172.8 million for redemption in full of the outstanding Notes, $9.1 million in tax payments from shares withheld for equity
awards, payment of $3.2 million on the note payable with related party, and $0.9 million in contingent consideration paid
related to the 2015 acquisition of SimpleTax. These cash outflows were offset by approximately $365.8 million in proceeds
from the Blucora senior secured credit facility that was entered into in May 2017 and $41.7 million in combined proceeds from
the issuance of common stock related to stock option exercises and the employee stock purchase plan.
Net cash provided by financing activities was $162.0 million for the year ended December 31, 2016. The activity in 2016
primarily consisted of payments of $140.0 million on the TaxAct - HD Vest 2015 credit facility, the $20.7 million repurchase of
the Notes, payment of $3.2 million on the note payable with related party, and $1.8 million in tax payments from shares
withheld for equity awards. These cash outflows were offset by approximately $16.0 million in excess tax benefits from stock-
based award activity primarily due to utilizing equity net operating loss carryforwards from prior years and $3.6 million in
combined proceeds from the issuance of common stock related to stock option exercises and the employee stock purchase plan.
Net cash used by financing activities was $320.7 million for the year ended December 31, 2015. The activity in 2015
primarily consisted of $378.3 million in proceeds from the TaxAct - HD Vest 2015 credit facility that was entered into on
December 31, 2015, $8.0 million in excess tax benefits from stock-based activity primarily due to utilizing equity net operating
loss carryforwards from prior years, and $3.6 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 offset by payments of $51.9 million on the
TaxAct 2013 credit facility, stock repurchases of $7.7 million, and $1.5 million in tax payments from shares withheld for equity
awards.
50
Critical Accounting Policies and Estimates
This Management’s Discussion and Analysis of Financial Condition and Results of Operations and the disclosures
included elsewhere in this Annual Report on Form 10-K are based upon our consolidated financial statements, which have been
prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and disclosure of contingencies. In some
cases, we could have reasonably used different accounting policies and estimates.
The SEC has defined a company’s most critical accounting policies as the ones that are the most important to the
portrayal of the company’s financial condition and results of operations and which require the company to make its most
difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. On
an ongoing basis, we evaluate the estimates used. We base our estimates on historical experience, current conditions, and on
various other assumptions that we believe to be reasonable under the circumstances and, based on information available to us at
that time, we make judgments about the carrying values of assets and liabilities that are not readily apparent from other sources
as well as identify and assess our accounting treatment with respect to commitments and contingencies. Actual results may
differ significantly from these estimates under different assumptions, judgments, or conditions. We believe the following
critical accounting policies involve the more significant judgments and estimates used in the preparation of our consolidated
financial statements. We also have other accounting policies that involve the use of estimates, judgments, and assumptions that
are significant to understanding our results. For additional information, see "Note 2: Summary of Significant Accounting
Policies" of the Notes to Consolidated Financial Statements in Part II Item 8 of this report.
Wealth management revenue recognition: Wealth management revenue consists primarily of commission revenue,
advisory revenue, asset-based revenue, and transaction and fee revenue. Revenue is recognized in the periods in which the
related services are performed, provided that persuasive evidence of an arrangement exists, the fee is fixed or determinable, and
collectibility is reasonably assured. Payments received in advance of the performance of service are deferred and recognized as
revenue when earned. Of Wealth management revenues, commissions revenue contains subjective judgments and the use of
estimates.
Commissions represent amounts generated by HD Vest's financial advisors for their clients' purchases and sales of
securities and various investment products. We generate two types of commissions: transaction-based sales commissions that
occur at the point of sale, as well as trailing commissions for which we provide ongoing account support to clients of our
financial advisors.
Transaction-based sales commission revenue is recorded on a trade-date basis, which is when our performance obligations
in generating the commissions have been substantially completed. Trailing commission revenue is based on a percentage of the
current market value of clients' investment holdings in trail-eligible assets and recognized over the period during which services
are performed. Since trailing commission revenue is generally paid in arrears, we estimate it based on a number of factors,
including market levels and the amount of trailing commission revenues received in prior periods, and also considers historical
payout ratios. These estimates are primarily based on historical information and there is not significant judgment involved.
A substantial portion of commission revenue is ultimately paid to financial advisors. Such amounts are recorded as
"Commissions and advisory fees payable" on the consolidated balance sheets and "Wealth management services cost of
revenue" on the consolidated statements of comprehensive income.
Tax preparation revenue recognition: We derive revenue from the sale of tax preparation online services, ancillary
services, packaged tax preparation software, and multiple element arrangements that may include a combination of these items.
Ancillary services primarily include tax preparation support services, data archive services and e-filing services. The Company
recognizes revenue from the sale of its packaged software when legal title transfers. This is generally when its customers
download the software from the Internet or, to a lesser extent, when the software ships. Of Tax Preparation revenues, revenues
from bank or reloadable prepaid debit card services, and software and/or services that consist of multiple elements contain
subjective judgments and the use of estimates.
The bank or reloadable prepaid debit card services are offered to taxpayers as an option to receive their tax refunds in the
form of a prepaid bank card or to have the fees for the software and/or services purchased by the customers deducted from their
refunds. Other value-added service revenue consists of revenue from revenue sharing and royalty arrangements with third
party partners. Revenue for these transactions is recognized when the revenue recognition criteria are met; for some
arrangements that is upon filing and for other arrangements that is upon our determination of when collectibility is probable.
51
For software and/or services that consist of multiple elements, we must: (1) determine whether and when each element
has been delivered; (2) determine the fair value of each element using the selling price hierarchy of vendor-specific objective
evidence (“VSOE”) of fair value if available, third-party evidence (“TPE”) of fair value if VSOE is not available, and
estimated selling price (“ESP”) if neither VSOE nor TPE is available; and (3) allocate the total price among the various
elements based on the relative selling price method. Once we have allocated the total price among the various elements, we
recognize revenue when the revenue recognition criteria described above are met for each element.
VSOE generally exists when we sell the deliverable separately. When VSOE cannot be established, we attempt to
establish a selling price for each element based on TPE. TPE is determined based on competitor prices for similar deliverables
when sold separately. When we are unable to establish selling price using VSOE or TPE, we use ESP in our allocation of
arrangement consideration. ESP is the estimated price at which we would sell the software or service if it were sold on a stand-
alone basis. We determine ESP for the software or service by considering multiple factors including, but not limited to,
historical stand-alone sales, pricing practices, market conditions, competitive landscape, internal costs, and gross margin
objectives. However, the impact of multiple element arrangements are not material and primarily impact the timing of revenue
recognition over the tax filing season, which is concentrated within the first two quarters of the filing period.
Income taxes: We account for income taxes under the asset and liability method, under which deferred tax assets,
including net operating loss carryforwards, and liabilities are determined based on temporary differences between the book and
tax bases of assets and liabilities. We periodically evaluate the likelihood of the realization of deferred tax assets and reduce
the carrying amount of the deferred tax assets by a valuation allowance to the extent we believe a portion will not be realized.
We consider many factors when assessing the likelihood of future realization of the deferred tax assets, including expectations
of future taxable income, recent cumulative earnings experience by taxing jurisdiction, and other relevant factors. There is a
wide range of possible judgments relating to the valuation of our deferred tax assets.
We record liabilities to address uncertain tax positions that have been taken in previously filed tax returns or that are
expected to be taken in a future tax return. The determination for required liabilities is based upon an analysis of each
individual tax position, taking into consideration whether it is more likely than not that the tax position, based on technical
merits, will be sustained upon examination. The tax benefit to be recognized in the financial statements from such a position is
measured as the largest amount of benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with
the taxing authority. The difference between the amount recognized and the total tax position is recorded as a liability. The
ultimate resolution of these tax positions may be greater or less than the liabilities recorded.
For additional information about the realization of our deferred tax assets and our valuation allowance, see "Note 16:
Income Taxes" of the Notes to Consolidated Financial Statements in Part II Item 8 of this report. For additional information
about our net operating loss carryforwards, see the Risk Factor "Our utilization of our net operating loss carryforwards
(“NOLs”) may be severely limited or potentially eliminated" in Part I Item 1A of this report.
Recent Accounting Pronouncements
See "Note 2: Summary of Significant Accounting Policies" of the Notes to Consolidated Financial Statements in Part II
Item 8 of this report.
52
Revenue:
Wealth management
services revenue
Tax preparation services
revenue
Total revenue
Operating expenses:
Cost of revenue:
Wealth management
services cost of revenue
Tax preparation services
cost of revenue
Amortization of acquired
technology
Total cost of revenue
Engineering and technology
Sales and marketing
General and administrative
Depreciation
Amortization of other
acquired intangible assets
Restructuring (2)
Total operating expenses
Operating income (loss)
Other loss, net
Income (loss) from continuing
operations before income
taxes
Income tax benefit (expense)
Income (loss) from continuing
operations
Discontinued operations, net
of income taxes (3)
Net income (loss)
Net income attributable to
noncontrolling interests
Net income (loss) attributable
to Blucora, Inc.
Quarterly Results of Operations (Unaudited)
The following table presents a summary of our unaudited consolidated results of operations for the eight quarters ended
December 31, 2017. The information for each of these quarters has been prepared on a basis consistent with our annual audited
consolidated financial statements. You should read this information in conjunction with our consolidated financial statements
and notes thereto in Part II Item 8. The operating results for any quarter are not necessarily indicative of results for any future
period.
March 31,
2016
June 30,
2016
June 30,
September 30,
2016
2017
(In thousands except per share data and percentages) (1)
December 31,
2016
March 31,
2017
September 30,
2017
December 31,
2017
$
77,291
$
76,117
$
80,088
$
83,050
$
82,667
$
85,296
$
86,809
$
93,848
88,474
165,765
43,991
120,108
3,149
83,237
3,751
86,801
99,708
182,375
53,866
139,162
3,362
90,171
4,001
97,849
52,269
51,023
54,921
55,783
55,874
56,963
59,607
63,415
3,207
667
56,143
4,295
43,837
12,753
975
8,316
—
126,319
39,446
(7,514)
31,932
(11,643)
20,289
2,522
22,811
2,023
49
53,095
3,959
19,913
11,508
963
8,316
—
97,754
22,354
(10,916)
11,438
(5,793)
1,319
49
56,289
4,588
11,965
11,638
968
8,297
—
93,745
(10,508)
(11,453)
(21,961)
8,537
1,819
47
57,649
4,938
13,645
11,497
975
8,402
3,870
100,976
(14,175)
(9,898)
(24,073)
10,184
3,818
48
59,740
4,748
48,998
13,483
940
8,288
2,289
138,486
43,889
(9,708)
34,181
(3,471)
5,645
(13,424)
(13,889)
30,710
(19,975)
(14,330)
(40,528)
(53,952)
(5,140)
(19,029)
—
30,710
(144)
(115)
(167)
(232)
(126)
$
22,667
$
(14,445) $
(54,119) $
(19,261) $
30,584
2,411
47
59,421
4,242
22,296
13,715
873
8,289
331
109,167
29,995
(24,200)
5,795
(2,315)
3,480
—
3,480
(176)
3,304
0.08
—
0.08
0.07
—
0.07
$
$
$
$
$
1,314
50
60,971
5,051
13,680
12,207
867
8,615
106
101,497
(11,326)
(5,241)
(16,567)
(166)
(16,733)
—
(16,733)
2,475
50
65,940
5,573
17,824
13,263
780
8,615
375
112,370
(14,521)
(5,402)
(19,923)
31,842
11,919
—
11,919
(164)
(1,871)
(16,897) $
10,048
(0.37) $
—
(0.37) $
(0.37) $
—
(0.37) $
0.22
—
0.22
0.21
—
0.21
$
$
$
$
$
Net income (loss) per share attributable to Blucora, Inc. - basic:
$
Continuing operations
Discontinued operations
Basic net income (loss) per
0.13
(0.48)
(0.35) $
$
Net income (loss) per share attributable to Blucora, Inc. - diluted:
$
$
0.49
0.06
0.55
$
$
$
$
Continuing operations
Discontinued operations
Diluted net income (loss)
$
0.48
0.06
0.54
$
0.13
(0.47)
(0.34) $
(0.33) $
(0.97)
(1.30) $
(0.33) $
(0.97)
(1.30) $
(0.34) $
(0.12)
(0.46) $
(0.34) $
(0.12)
(0.46) $
0.73
—
0.73
0.67
—
0.67
Weighted average shares outstanding:
Basic
Diluted
41,171
41,610
41,405
42,298
41,635
41,635
41,766
41,766
42,145
45,428
43,644
46,937
45,459
45,459
46,231
48,406
53
Revenue:
Wealth management
services revenue
Tax preparation services
revenue
Total revenue
Operating expenses:
Cost of revenue (4):
Wealth management
services cost of revenue
Tax preparation services
cost of revenue
Amortization of acquired
technology
Total cost of revenue
Engineering and technology
Sales and marketing
General and administrative
Depreciation
Amortization of other
acquired intangible assets
Restructuring
Total operating expenses
Operating income (loss)
Other loss, net
Income (loss) from continuing
operations before income
taxes
Income tax benefit (expense)
Income (loss) from continuing
operations
Discontinued operations, net
of income taxes
Net income (loss)
Net income attributable to
noncontrolling interests
Net income (loss) attributable
to Blucora, Inc.
March 31,
2016
June 30,
2016
September 30,
2016
December 31,
2016
March 31,
2017
June 30,
2017
September 30,
2017
December 31,
2017
46.6%
63.4 %
96.2 %
95.7 %
45.3%
61.3%
96.3 %
95.9%
53.4
100.0
36.6
100.0
3.8
100.0
4.3
100.0
54.7
100.0
38.7
100.0
3.7
100.0
4.1
100.0
67.6
3.6
0.4
33.9
2.6
26.4
7.7
0.6
5.0
—
76.2
23.8
(4.5)
19.3
(7.0)
12.3
1.5
13.8
(0.1)
67.0
4.6
0.0
44.2
3.3
16.6
9.6
0.8
6.9
—
81.4
18.6
(9.1)
9.5
(4.8)
4.7
(16.6)
(11.9)
(0.1)
68.6
41.9
0.1
67.6
5.5
14.4
14.0
1.2
10.0
—
112.7
(12.7)
(13.8)
(26.5)
10.3
(16.2)
(48.7)
(64.9)
(0.2)
67.2
48.5
0.1
66.4
5.7
15.7
13.2
1.1
9.7
4.5
116.3
(16.3)
(11.4)
(27.7)
11.7
(16.0)
(5.9)
(21.9)
(0.3)
67.6
3.8
0.0
32.8
2.6
26.9
7.4
0.5
4.5
1.3
76.0
24.0
(5.3)
18.7
(1.9)
16.8
—
16.8
(0.1)
66.8
4.5
0.0
42.7
3.0
16.0
9.9
0.6
6.0
0.2
78.4
21.6
(17.4)
4.2
(1.7)
2.5
—
2.5
(0.1)
68.7
39.1
0.1
67.6
5.6
15.2
13.5
1.0
9.6
0.1
112.6
(12.6)
(5.8)
(18.4)
(0.2)
(18.6)
—
(18.6)
(0.2)
13.7%
(12.0)%
(65.1)%
(22.2)%
16.7%
2.4%
(18.8)%
67.6
61.9
0.1
67.4
5.7
18.2
13.6
0.8
8.8
0.4
114.9
(14.9)
(5.5)
(20.4)
32.5
12.1
—
12.1
(1.9)
10.2%
(1) On December 31, 2015, we acquired HD Vest. See "Note 3: Business Combinations" of the Notes to Consolidated
Financial Statements in Part II Item 8 of this report.
(2) On October 27, 2016, we announced plans to relocate our corporate headquarters by June 2017 from Bellevue,
Washington to Irving, Texas. In connection with this plan, we incurred restructuring costs. See "Note 5: Restructuring"
of the Notes to Consolidated Financial Statements in Part II Item 8 of this report for more information.
(3) We sold the Search and Content business and the E-Commerce business on August 9, 2016 and November 17, 2016,
(4)
respectively. See "Note 4: Discontinued Operations" of the Notes to Consolidated Financial Statements in Part II Item 8
of this report for more information.
"Wealth management services cost of revenue" and "Tax preparation services cost of revenue" are calculated based on
their respective revenue bases of "Wealth management services revenue" and "Tax Preparation services revenue,"
respectively. "Total cost of revenue" is calculated based on "Total revenue."
54
ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to financial market risks, including changes in the market values of our marketable debt securities and
interest rates.
Financial market risk: We do not invest in financial instruments or their derivatives for trading or speculative purposes.
By policy, we limit our credit exposure to any one issuer, other than securities issued by the U.S. federal government and its
agencies, and do not have any derivative instruments in our investment portfolio. The three primary goals that guide our
investment decisions, with the first being the most important, are: preserve capital, maintain ease of conversion into immediate
liquidity, and achieve a rate of return over a pre-determined benchmark. As of December 31, 2017, we principally invest in
money market fund securities. We consider the market value, default, and liquidity risks of our investments to be low at
December 31, 2017.
Interest rate risk: At December 31, 2017, our cash equivalent balance of $10.9 million was held in money market funds.
We consider the interest rate risk for our cash equivalent securities held at December 31, 2017 to be low. For further detail on
our cash equivalents, see "Note 7: Fair Value Measurements" of the Notes to Consolidated Financial Statements in Part II
Item 8 of this report.
In addition, as of December 31, 2017, we have $345.0 million of debt outstanding under the Blucora senior secured credit
facilities, which carries a degree of interest rate risk. This debt has a floating portion of its interest rate tied to the London
Interbank Offered Rate (“LIBOR”). For further information on our outstanding debt, see "Note 9: Debt" of the Notes to
Consolidated Financial Statements in Part II Item 8 of this report. A hypothetical 100 basis point increase in LIBOR on
December 31, 2017 would result in a $22.0 million increase in our interest expense until the scheduled maturity date in 2024.
The following table provides information about our cash equivalent securities as of December 31, 2017, including
principal cash flows for 2018 and thereafter and the related weighted average interest rates. The change in fair values during
2017 for our cash equivalent securities was not material and was recorded in other comprehensive income. Principal amounts
and weighted average interest rates by expected year of maturity are as follows:
(In thousands, except percentages)
Money market and other funds
Cash equivalents
2018
10,857
1.00%
Thereafter
—
Total
—%
10,857
1.00%
$
10,857
$
—
$
10,857
Fair Value
10,857
$
10,857
55
ITEM 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Comprehensive Income (Loss)
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Page
57
58
59
60
61
62
56
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of Blucora, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Blucora, Inc. (the Company) as of December 31, 2017 and
2016, the related consolidated statements of comprehensive income (loss), stockholders' equity and cash flows for each of the
three years in the period ended December 31, 2017, and the related notes (collectively referred to as the “consolidated financial
statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position
of the Company at December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years
in the period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(2013 framework), and our report dated March 1, 2018 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to
error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2012.
Dallas, Texas
March 1, 2018
57
BLUCORA, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
ASSETS
Current assets:
Cash and cash equivalents
Cash segregated under federal or other regulations
Available-for-sale investments
Accounts receivable, net of allowance
Commissions receivable
Other receivables
Prepaid expenses and other current assets, net
Total current assets
Long-term assets:
Property and equipment, net
Goodwill, net
Other intangible assets, net
Other long-term assets
Total long-term assets
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
Commissions and advisory fees payable
Accrued expenses and other current liabilities
Deferred revenue
Current portion of long-term debt, net
Total current liabilities
Long-term liabilities:
Long-term debt, net
Convertible senior notes, net
Deferred tax liability, net
Deferred revenue
Other long-term liabilities
Total long-term liabilities
Total liabilities
$
$
$
December 31,
2017
2016
$
$
$
59,965
1,371
—
10,694
16,822
3,180
7,365
99,397
9,831
549,037
328,205
15,201
902,274
1,001,671
4,413
17,813
19,577
9,953
—
51,756
338,081
—
43,433
804
8,177
390,495
442,251
51,713
2,355
7,101
10,209
16,144
4,004
6,321
97,847
10,836
548,741
362,178
3,057
924,812
1,022,659
4,536
16,587
18,528
12,156
2,560
54,367
248,221
164,176
111,126
1,849
10,205
535,577
589,944
Redeemable noncontrolling interests
18,033
15,696
Commitments and contingencies (Note 10)
Stockholders’ equity:
Common stock, par $0.0001—authorized shares, 900,000; issued and outstanding shares,
46,366 and 41,845
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive loss
Total stockholders’ equity
Total liabilities and stockholders’ equity
See notes to consolidated financial statements.
5
1,555,560
(1,014,174)
(4)
541,387
1,001,671
$
4
1,510,152
(1,092,756)
(381)
417,019
1,022,659
$
58
BLUCORA, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands, except per share data)
Revenue:
Wealth management services revenue
Tax preparation services revenue
Total revenue
Operating expenses:
Cost of revenue:
Wealth management services cost of revenue
Tax preparation services cost of revenue
Amortization of acquired technology
Total cost of revenue
Engineering and technology
Sales and marketing
General and administrative
Depreciation
Amortization of other acquired intangible assets
Restructuring
Total operating expenses
Operating income (loss)
Other loss, net
Income (loss) from continuing operations before income taxes
Income tax benefit
Income (loss) from continuing operations
Discontinued operations, net of income taxes
Net income (loss)
Net income attributable to noncontrolling interests
Net income (loss) attributable to Blucora, Inc.
Net income (loss) per share attributable to Blucora, Inc. - basic:
Continuing operations
Discontinued operations
Basic net income (loss) per share
Net income (loss) per share attributable to Blucora, Inc. - diluted:
Continuing operations
Discontinued operations
Diluted net income (loss) per share
Weighted average shares outstanding:
Basic
Diluted
Other comprehensive income:
Net income (loss)
Unrealized gain (loss) on available-for-sale investments, net of tax
Foreign currency translation adjustment
Reclassification adjustment for realized loss on available-for-sale investments,
net of tax, included in net income as Other loss, net
Reclassification adjustment for other-than-temporary impairment loss on
available-for-sale investments, included in net income as discontinued
operations
Other comprehensive income
Comprehensive income (loss)
Comprehensive income attributable to noncontrolling interests
Comprehensive income (loss) attributable to Blucora, Inc.
Years ended December 31,
2017
2016
2015
$
$
348,620
160,937
509,557
$
316,546
139,365
455,911
—
117,708
117,708
235,859
10,018
195
246,072
19,614
102,798
52,668
3,460
33,807
3,101
461,520
48,037
(44,551)
3,486
25,890
29,376
—
29,376
(2,337)
27,039
0.61
—
0.61
0.57
—
0.57
44,370
47,211
29,376
1
376
—
—
377
29,753
(2,337)
27,416
$
$
$
$
$
$
$
213,996
8,368
812
223,176
17,780
89,360
47,396
3,881
33,331
3,870
418,794
37,117
(39,781)
(2,664)
1,285
(1,379)
(63,121)
(64,500)
(658)
(65,158) $
(0.05) $
(1.52)
(1.57) $
(0.05) $
(1.52)
(1.57) $
41,494
41,494
(64,500) $
9
137
—
—
146
(64,354)
(658)
(65,012) $
—
6,167
7,546
13,713
5,107
45,854
43,563
1,521
12,757
—
122,515
(4,807)
(12,542)
(17,349)
4,623
(12,726)
(27,348)
(40,074)
—
(40,074)
(0.31)
(0.67)
(0.98)
(0.31)
(0.67)
(0.98)
40,959
40,959
(40,074)
(236)
(517)
375
964
586
(39,488)
—
(39,488)
$
$
$
$
$
$
$
See notes to consolidated financial statements.
59
BLUCORA, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands)
Redeemable
Noncontrolling
Interests
Common stock
Shares
Amount
Additional-
paid-in
capital
Accumulated
deficit
Accumulated
other
comprehensive
income (loss)
Total
40,882
$
4
$
1,467,658
$
(987,524) $
(1,113) $
479,025
Balance as of December 31, 2014
$
Common stock issued for stock
options and restricted stock units
Common stock issued for employee
stock purchase plan
Stock repurchases
Other comprehensive income
Stock-based compensation
Tax effect of equity compensation
Tax payments from shares withheld
for equity awards
Net loss
Purchase of redeemable non-
controlling interests
Balance as of December 31, 2015
Common stock issued for stock
options and restricted stock units
Common stock issued for employee
stock purchase plan
Other comprehensive income
Stock-based compensation
Tax effect of equity compensation
Tax payments from shares withheld
for equity awards
Reclassification of equity award to
liability award
Net income (loss)
—
—
—
—
—
—
—
—
—
15,038
15,038
—
—
—
—
—
—
—
658
520
103
(551)
—
—
—
—
—
—
40,954
700
191
—
—
—
—
—
—
Balance as of December 31, 2016
15,696
41,845
Common stock issued for stock
options and restricted stock units
Common stock issued for employee
stock purchase plan
Other comprehensive income
Stock-based compensation and impact
of recent ASU
Tax payments from shares withheld
for equity awards
Other
Net income
Balance as of December 31, 2017
$
—
—
—
—
—
—
2,337
18,033
4,382
139
—
—
—
—
—
46,366
$
—
—
—
—
—
—
—
—
—
4
—
—
—
—
—
—
—
—
4
1
—
—
—
—
—
—
5
2,409
1,193
(7,735)
—
13,047
15,378
(1,545)
—
—
—
—
—
—
—
—
—
(40,074)
—
—
—
—
586
—
—
—
—
—
1,490,405
(1,027,598)
(527)
2,216
1,402
—
15,235
2,461
(1,752)
185
—
—
—
—
—
—
—
—
(65,158)
1,510,152
(1,092,756)
40,271
1,429
—
—
—
—
12,801
51,543
(9,095)
2
—
—
—
27,039
—
—
146
—
—
—
—
(381)
—
—
377
—
—
—
—
$
1,555,560
$
(1,014,174) $
(4) $
2,409
1,193
(7,735)
586
13,047
15,378
(1,545)
(40,074)
—
462,284
2,216
1,402
146
15,235
2,461
(1,752)
185
(65,158)
417,019
40,272
1,429
377
64,344
(9,095)
2
27,039
541,387
See notes to consolidated financial statements.
60
BLUCORA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
2017
Years ended December 31,
2016
2015
$
$
29,376
—
29,376
(64,500) $
(63,121)
(1,379)
Operating Activities:
Net income (loss)
Less: Discontinued operations, net of income taxes
Net income (loss) from continuing operations
Adjustments to reconcile net income (loss) from continuing operations to net cash from
operating activities:
Stock-based compensation
Depreciation and amortization of acquired intangible assets
Restructuring (non-cash)
Deferred income taxes
Amortization of premium on investments, net
Amortization of debt issuance costs
Accretion of debt discounts
Loss on debt extinguishment and modification expense
Revaluation of acquisition-related contingent consideration liability
Other
Cash provided (used) by changes in operating assets and liabilities:
Accounts receivable
Commissions receivable
Other receivables
Prepaid expenses and other current assets
Other long-term assets
Accounts payable
Commissions and advisory fees payable
Deferred revenue
Accrued expenses and other current and long-term liabilities
Net cash provided by operating activities from continuing operations
Investing Activities:
Business acquisitions, net of cash acquired
Purchases of property and equipment
Proceeds from sales of investments
Proceeds from maturities of investments
Purchases of investments
Net cash provided (used) by investing activities from continuing operations
Financing Activities:
Proceeds from credit facility, net of debt issuance costs and debt discount of $5,913
and $1,875 in 2017 and $9,730 and $12,000 in 2015, respectively
Repurchase of convertible notes
Repayment of credit facility
Repayment of note payable with related party
Stock repurchases
Proceeds from stock option exercises
Proceeds from issuance of stock through employee stock purchase plan
Tax payments from shares withheld for equity awards
Contingent consideration payments for business acquisition
Other
Net cash provided (used) by financing activities from continuing operations
Net cash provided (used) by continuing operations
Net cash provided by operating activities from discontinued operations
Net cash provided (used) by investing activities from discontinued operations
Net cash used in financing activities from discontinued operations
Net cash provided by discontinued operations
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash, cash equivalents, and restricted cash
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
Non-cash investing and financing activities from continuing operations:
Cash paid for income taxes from continuing operations
Cash paid for interest from continuing operations
$
$
$
(40,074)
(27,348)
(12,726)
8,694
22,590
—
(12,607)
1,589
1,133
3,866
398
—
203
(1,862)
—
651
(493)
(15)
369
—
1,875
10,643
24,308
(569,709)
(1,512)
156,506
296,455
(214,257)
(332,517)
378,270
—
(51,940)
—
(7,735)
2,409
1,193
(1,545)
—
—
320,652
12,443
22,126
(540)
(17,000)
4,586
(17)
17,012
42,818
59,830
614
8,994
11,653
38,139
1,569
(16,159)
10
1,089
1,947
20,445
—
30
(483)
(678)
(204)
(869)
(12,281)
(123)
1,226
(3,248)
1,407
72,846
—
(5,039)
249
7,252
(409)
2,053
365,836
(172,827)
(290,000)
(3,200)
—
40,271
1,429
(9,095)
(946)
(30)
(68,562)
6,337
—
1,028
—
1,028
78
7,443
54,868
62,311
1,267
23,316
$
$
$
14,128
38,688
(364)
(18,055)
174
1,840
4,690
1,036
391
19
(2,340)
184
22,875
3,741
(887)
(153)
(395)
582
21,195
85,970
(1,788)
(3,812)
—
12,807
(8,767)
(1,560)
—
(20,667)
(140,000)
(3,200)
—
2,216
1,402
(1,752)
—
—
(162,001)
(77,591)
14,047
83,608
(25,000)
72,655
(26)
(4,962)
59,830
54,868
2,012
32,377
$
$
$
See notes to consolidated financial statements.
61
BLUCORA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2017, 2016, and 2015
Note 1: Description of the Business
Blucora, Inc. (the “Company” or “Blucora”) operates two businesses: a Wealth Management business and an online Tax
Preparation business. The Wealth Management business consists of the operations of HDV Holdings, Inc. and its subsidiaries
("HD Vest"). HDV Holdings, Inc. is the parent company of the Wealth Management business and owns all outstanding shares
of HD Vest, Inc., which serves as a holding company for the various financial services subsidiaries. Those subsidiaries include
HD Vest Investment Securities, Inc. (an introducing broker-dealer), H.D. Vest Advisory Services, Inc. (a registered investment
adviser), and H.D. Vest Insurance Agency, LLC (an insurance broker) (collectively referred to as the "Wealth Management
business" or the "Wealth Management segment"). The Tax Preparation business consists of the operations of TaxAct, Inc.
and its subsidiary ("TaxAct") 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 "Tax Preparation business" or the "Tax
Preparation segment").
Prior to 2017, the Company also operated an internet Search and Content business and an E-Commerce business. The
Search and Content business operated through the InfoSpace LLC subsidiary (“InfoSpace”) and provided search services to
users of its owned and operated and distribution partners’ web properties, as well as online content through HowStuffWorks
(“HSW”). The E-Commerce business consisted of the operations of Monoprice, Inc. (“Monoprice”) and sold self-branded
electronics and accessories to both consumers and businesses primarily through its website.
The Company completed both divestitures in 2016. Specifically, on November 17, 2016, the Company closed on an
agreement with YFC-Boneagle Electric Co., Ltd (“YFC”), under which YFC acquired the E-Commerce business for $40.5
million. On August 9, 2016, the Company closed on an agreement with OpenMail LLC (“OpenMail”), under which OpenMail
acquired substantially all of the assets and assumed certain specified liabilities of the Search and Content business for $45.2
million.
The financial condition, results of operations, cash flows, and the notes to financial statements reflect the Search and
Content and E-Commerce businesses as discontinued operations for all periods presented. Except for disclosures related to
equity and unless otherwise specified, disclosures in these consolidated financial statements reflect continuing operations.
On October 14, 2015, the Company announced its plans to focus on the technology-enabled financial solutions market
(the "Strategic Transformation"). Strategic Transformation refers to the Company's transformation into a technology-enabled
financial solutions company comprised of TaxAct and HD Vest and the divestitures of the Search and Content and E-Commerce
businesses in 2016. As part of the Strategic Transformation and "One Company" operating model, the Company announced on
October 27, 2016 plans to relocate its corporate headquarters by June 2017 from Bellevue, Washington to Irving, Texas. The
actions to relocate corporate headquarters were intended to drive efficiencies and improve operational effectiveness. The
restructuring is now substantially complete and it is expected to be completed by early 2018.
Segments: The Company has two reportable segments: the Wealth Management segment, which is the HD Vest business,
and the Tax Preparation segment, which is the TaxAct business. Unless the context indicates otherwise, the Company uses the
term “Wealth Management” to represent services sold through the HD Vest business, the term “Tax Preparation” to represent
services and software sold through the TaxAct business, the term “Search and Content” to represent search and content
services, and the term “E-Commerce” to represent products sold through the Monoprice business.
Reclassification: The Company reclassified certain amounts on its consolidated statements of cash flows related to excess
tax benefits generated from stock-based compensation and restricted cash, both in connection with the implementation of new
accounting pronouncements. See the "Recent accounting pronouncements" section of "Note 2: Summary of Significant
Accounting Policies" for additional information.
Principles of consolidation: The consolidated financial statements include the accounts of the Company and its
subsidiaries. Intercompany accounts and transactions have been eliminated.
Use of estimates: The preparation of financial statements in conformity with accounting principles generally accepted in
the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported
amounts of assets, liabilities, revenues, expenses, and disclosure of contingencies. Estimates include those used for impairment
62
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 2017, 2016, and 2015
of goodwill and other intangible assets, useful lives of other intangible assets, acquisition accounting, valuation of investments,
revenue recognition, the estimated allowance for sales returns and doubtful accounts, internally developed software, accrued
contingencies, stock option valuation, and valuation allowance for deferred tax assets. Actual amounts may differ from
estimates.
Net capital and regulatory requirements: The Company's HD Vest broker-dealer subsidiary operates in a highly regulated
industry and is subject to various regulatory capital requirements. Failure to meet minimum capital requirements can initiate
certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have substantial
monetary and non-monetary impacts to HD Vest's operations. As of December 31, 2017, HD Vest met all capital adequacy
requirements to which it was subject.
Seasonality: Blucora’s Tax Preparation segment is highly seasonal, with a significant portion of its annual revenue earned
in the first four months of the Company’s 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.
Note 2: Summary of Significant Accounting Policies
Cash equivalents: The Company considers all highly liquid debt instruments with an original maturity of ninety days or
less at date of acquisition to be cash equivalents.
Cash segregated under federal or other regulations: Cash segregated under federal and other regulations is held in a
special bank account for the exclusive benefit of the Company’s wealth management customers.
Available-for-sale investments: The Company principally invests its available cash in fixed-rate debt securities. Fixed-
rate debt securities generally include debt instruments issued by the U.S. federal government and its agencies, international
governments, municipalities and publicly-held corporations, as well as commercial paper, insured time deposits with
commercial banks, and money market funds invested in securities issued by agencies of the U.S., although specific holdings
can vary from period to period depending upon the Company's cash requirements. Such investments are included in "Cash and
cash equivalents" and "Available-for-sale investments" on the consolidated balance sheets and reported at fair value with
unrealized gains and losses included in "Accumulated other comprehensive loss" on the consolidated balance sheets.
The Company reviews its available-for-sale investments for impairment and classifies the impairment of any individual
available-for-sale investment as either temporary or other-than-temporary. The differentiating factors between temporary and
other-than-temporary impairments are primarily the length of the time and the extent to which the fair value has been less than
cost, the financial condition and near-term prospects of the issuer, and the intent and ability of the Company to retain its
investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. An impairment
classified as temporary is recognized in "Accumulated other comprehensive loss" on the consolidated balance sheets. An
impairment classified as other-than-temporary is recognized in "Other loss, net" on the consolidated statements of
comprehensive income.
Accounts receivable: Accounts receivable are stated at amounts due from customers net of an allowance for doubtful
accounts, which was not material at December 31, 2017 and 2016, respectively.
Property and equipment: Property and equipment are stated at cost. Depreciation is computed under the straight-line
method over the following estimated useful lives:
Computer equipment and software
Data center servers
Internally-developed software
Office equipment
Office furniture
Leasehold improvements
3 years
3 years
3 years
7 years
7 years
Shorter of lease term or economic life
63
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 2017, 2016, and 2015
The Company capitalizes certain internal-use software development costs, consisting primarily of contractor costs and
employee salaries and benefits allocated on a project or product basis. The Company capitalized $3.5 million, $1.0 million, and
$0.3 million of internal-use software costs in the years ended December 31, 2017, 2016, and 2015, respectively.
Business combinations and intangible assets including goodwill: The Company accounts for business combinations
using the acquisition method. The acquisition-date fair value of total consideration includes cash and contingent consideration.
Since the Company is contractually obligated to pay contingent consideration upon the achievement of specified objectives, a
contingent consideration liability is recorded at the acquisition date. The Company reviews its assumptions related to the fair
value of the contingent consideration liability each reporting period and, if there are material changes, revalues the contingent
consideration liability based on the revised assumptions, until such contingency is satisfied through payment upon the
achievement of the specified objectives. The change in the fair value of the contingent consideration liability is recognized in
"General and administrative" expense on the consolidated statements of comprehensive income for the period in which the fair
value changes.
Goodwill is calculated as the excess of the acquisition-date fair value of total consideration over the acquisition-date fair
value of net assets, including the amount assigned to identifiable intangible assets, and is assigned to reporting units that are
expected to benefit from the synergies of the business combination as of the acquisition date. Reporting units are consistent
with reportable segments and included the former Search and Content and E-Commerce segments. Identifiable intangible
assets with finite lives are amortized over their useful lives on a straight-line basis, except for advisor relationships which are
amortized proportional to expected revenue. Acquisition-related costs, including advisory, legal, accounting, valuation, and
other similar costs, are expensed in the periods in which the costs are incurred. The results of operations of acquired businesses
are included in the consolidated financial statements from the acquisition date.
Goodwill and intangible assets impairment: The Company evaluates goodwill and indefinite-lived intangible assets for
impairment annually, as of November 30, or more frequently when events or circumstances indicate that impairment may have
occurred. As part of the impairment evaluation, the Company may elect to perform an assessment of qualitative factors. If this
qualitative assessment indicates that it is more likely than not that the fair value of a reporting unit or an indefinite-lived
intangible asset is less than its carrying value, or if the Company elects to bypass the qualitative assessment, the Company then
would proceed with the quantitative impairment test.
The Company performed a qualitative assessment as of November 30, 2017, and determined that no conditions existed
that would make it more likely than not that goodwill and the indefinite-lived assets were impaired. Therefore, no further
quantitative assessment was required.
Definite-lived intangible assets are reviewed for impairment when events or circumstances indicate that the carrying
value of an asset or group of assets may not be recoverable. The determination of recoverability is based on an estimate of pre-
tax undiscounted future cash flows, using the Company's best estimates of future net sales and operating expenses, expected to
result from the use and eventual disposition of the asset or group of assets over the remaining economic life of the primary asset
in the asset group. The Company measures the amount of the impairment as the excess of the asset's carrying value over its fair
value.
See "Note 4: Discontinued Operations" for discussion of impairment of goodwill and intangible assets in the fourth
quarter of 2015.
Fair value of financial instruments: The Company measures its cash equivalents, available-for-sale investments, and
contingent consideration liability 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.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. Cash equivalents and debt securities are classified within Level 2 (see
"Note 7: Fair Value Measurements") of the fair value hierarchy because the Company values them utilizing market observable
inputs. Unrealized gains and losses are included in "Accumulated other comprehensive income (loss)" on the consolidated
balance sheets, and amounts reclassified out of comprehensive income into net income are determined on the basis of specific
identification.
64
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 2017, 2016, and 2015
The Company has a contingent consideration liability that is related to the Company's 2015 acquisition of SimpleTax
Software Inc. ("SimpleTax") and is classified within Level 3 (see "Note 7: Fair Value Measurements") of the fair value
hierarchy because the Company values it utilizing inputs not observable in the market. The Company accounts for contingent
consideration in accordance with applicable accounting guidance pertaining to business combinations.
Redeemable noncontrolling interests: Noncontrolling interests that are redeemable at the option of the holder and not
solely within the control of the issuer are classified outside of stockholders' equity. In connection with the acquisition of HD
Vest, management of that business has retained an ownership interest. The Company is party to put and call arrangements with
respect to these interests. These put and call arrangements allow HD Vest management to require the Company to purchase
their interests or allow the Company to acquire such interests, respectively. The put arrangements do not meet the definition of
a derivative instrument as the put agreements do not provide for net settlement. To the extent that the redemption value of these
interests exceeds the value determined by adjusting the carrying value for the subsidiary's attribution of net income (loss), the
value of such interests is adjusted to the redemption value with a corresponding adjustment to additional paid-in capital. The
redemption amount at December 31, 2017 and December 31, 2016 was $12.4 million and $11.6 million, respectively.
Revenue recognition, general: The Company recognizes revenue when all four revenue recognition criteria have been
met: persuasive evidence of an arrangement exists, the Company has delivered the product or performed the service, the fee is
fixed or determinable, and collectibility is probable. Determining whether and when these criteria have been satisfied involves
judgment, estimates and assumptions that can have an impact on the timing and amount of revenue that the Company
recognizes.
Revenue is recognized net of allowances, which are management's estimates of fees to be paid to a third party service
provider for fulfillment of the Company's audit defense services. These fees are not material and generally include an estimate
of audit defense fees to be paid, based on an analysis of historical data and contractual terms, and are recorded when revenue is
recognized. The Company believes that it can reasonably and reliably estimate fees to the third party service provider in a
timely manner.
The Company evaluates whether revenue should be presented on a gross basis, which is the amount that a customer pays
for the service or product, or on a net basis, which is the customer payment less amounts the Company pays to suppliers. In
making that evaluation, the Company primarily considers indicators such as whether the Company is the primary obligor in the
arrangement and assumes the risks and rewards as a principal in the customer transaction.
Wealth management revenue recognition: Wealth management revenue consists primarily of commission revenue,
advisory revenue, asset-based revenue, and transaction and fee revenue. Revenue is recognized in the periods in which the
related services are performed, provided that persuasive evidence of an arrangement exists, the fee is fixed or determinable, and
collectibility is reasonably assured. Payments received by the Company in advance of the performance of service are deferred
and recognized as revenue when earned. Of Wealth management revenues, commissions revenue contains subjective judgments
and the use of estimates.
Commissions represent amounts generated by HD Vest's financial advisors for their clients' purchases and sales of
securities and various investment products. The Company generates two types of commissions: transaction-based sales
commissions that occur at the point of sale, as well as trailing commissions for which the Company provides ongoing account
support to clients of its financial advisors.
The Company records transaction-based sales commission revenue on a trade-date basis, which is when the Company's
performance obligations in generating the commissions have been substantially completed. Trailing commission revenue is
based on a percentage of the current market value of clients' investment holdings in trail-eligible assets and recognized over the
period during which services are performed. Since trailing commission revenue is generally paid in arrears, the Company
estimates it based on a number of factors, including stock market index levels and the amount of trailing commission revenues
received in prior periods, and also considers historical payout ratios. These estimates are primarily based on historical
information and there is not significant judgment involved.
A substantial portion of commission revenue is ultimately paid to financial advisors. The Company records an estimate
for transaction-based commissions payable based upon the payout rate of the financial advisor generating the accrued
commission revenue. The Company records an estimate for trailing commissions payable based upon historical payout ratios.
65
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 2017, 2016, and 2015
Such amounts are recorded as "Commissions and advisory fees payable" on the consolidated balance sheets and "Wealth
management services cost of revenue" on the consolidated statements of comprehensive income.
Tax preparation revenue recognition: The Company derives revenue from the sale of tax preparation online services,
ancillary services, packaged tax preparation software, and multiple element arrangements that may include a combination of
these items. Ancillary services primarily include tax preparation support services, data archive services and e-filing services.
The Company recognizes revenue from the sale of its packaged software when legal title transfers. This is generally when its
customers download the software from the Internet or, to a lesser extent, when the software ships. This revenue is recorded in
the Tax Preparation segment. Of Tax Preparation revenues, revenues from bank or reloadable prepaid debit card services, and
software and/or services that consist of multiple elements contain subjective judgments and the use of estimates.
The bank or reloadable prepaid debit card services are offered to taxpayers as an option to receive their tax refunds in the
form of a prepaid bank card or to have the fees for the software and/or services purchased by the customers deducted from their
refunds. Other value-added service revenue consists of revenue from revenue sharing and royalty arrangements with third party
partners. Revenue for these transactions is recognized when the revenue recognition criteria are met; for some arrangements
that is upon filing and for other arrangements that is upon the Company’s determination of when collectibility is probable.
For software and/or services that consist of multiple elements, the Company must: (1) determine whether and when each
element has been delivered; (2) determine the fair value of each element using the selling price hierarchy of vendor-specific
objective evidence (“VSOE”) of fair value if available, third-party evidence (“TPE”) of fair value if VSOE is not available,
and estimated selling price (“ESP”) if neither VSOE nor TPE is available; and (3) allocate the total price among the various
elements based on the relative selling price method. Once the Company has allocated the total price among the various
elements, it recognizes revenue when the revenue recognition criteria described above are met for each element.
VSOE generally exists when the Company sells the deliverable separately. When VSOE cannot be established, the
Company attempts to establish a selling price for each element based on TPE. TPE is determined based on competitor prices for
similar deliverables when sold separately. When the Company is unable to establish selling price using VSOE or TPE, it uses
ESP in its allocation of arrangement consideration. ESP is the estimated price at which the Company would sell the software or
service if it were sold on a stand-alone basis. The Company determines ESP for the software or service by considering multiple
factors including, but not limited to, historical stand-alone sales, pricing practices, market conditions, competitive landscape,
internal costs, and gross margin objectives. However, the impact of multiple element arrangements are not material and
primarily impact the timing of revenue recognition over the tax filing season, which is concentrated within the first two quarters
of the filing period.
Advertising expenses: Costs for advertising are recorded as expense, and classified within "Sales and marketing" on the
consolidated statements of comprehensive income, when the advertisement appears. Advertising expense totaled $51.7 million,
$44.0 million, and $35.5 million for the years ended December 31, 2017, 2016, and 2015, respectively. Prepaid advertising
costs were $0.3 million and $0.6 million at December 31, 2017 and 2016, respectively.
Stock-based compensation: The Company measures stock-based compensation at the grant date based on the fair value
of the award and recognizes it as expense, net of estimated forfeitures, over the vesting or service period, as applicable, of the
stock award using the straight-line method. The Company recognizes stock-based compensation over the vesting period for
each separately vesting portion of a share-based award as if they were individual share-based awards. The Company estimates
forfeitures at the time of grant and revises those estimates, if necessary, in subsequent periods if actual forfeitures differ from
those estimates.
Income taxes: The Company accounts for income taxes under the asset and liability method, under which deferred tax
assets, including net operating loss carryforwards, and liabilities are determined based on temporary differences between the
book and tax bases of assets and liabilities. The Company periodically evaluates the likelihood of the realization of deferred tax
assets and reduces the carrying amount of the deferred tax assets by a valuation allowance to the extent the Company believes a
portion will not be realized. The Company considers many factors when assessing the likelihood of future realization of the
deferred tax assets, including expectations of future taxable income, recent cumulative earnings experience by taxing
jurisdiction, and other relevant factors. There is a wide range of possible judgments relating to the valuation of the Company's
deferred tax assets.
66
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 2017, 2016, and 2015
The Company records liabilities to address uncertain tax positions that have been taken in previously filed tax returns or
that are expected to be taken in a future tax return. The determination for required liabilities is based upon an analysis of each
individual tax position, taking into consideration whether it is more likely than not that the tax position, based on technical
merits, will be sustained upon examination. The tax benefit to be recognized in the financial statements from such a position is
measured as the largest amount of benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with
the taxing authority. The difference between the amount recognized and the total tax position is recorded as a liability. The
ultimate resolution of these tax positions may be greater or less than the liabilities recorded. The Company recognizes interest
and penalties related to uncertain tax positions in interest expense and general and administrative expense, respectively.
Foreign currency: The financial position and operating results of the Company's foreign operations are consolidated using
the local currency as the functional currency. Assets and liabilities recorded in local currencies are translated at the exchange
rate on the balance sheet date, while revenues and expenses are translated at the average exchange rate for the applicable
period. Translation adjustments resulting from this process are recorded in "Accumulated other comprehensive loss" on the
consolidated balance sheets. The gain or loss on foreign currency transactions, calculated as the difference between the
historical exchange rate and the exchange rate at the applicable measurement date, are recorded in "Other loss, net" on the
consolidated statements of comprehensive income.
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 the agreement.
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.
Geographic revenue information: Almost all of the Company's revenue for 2017, 2016, and 2015 was generated from
customers located in the United States.
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 not listed below were assessed and determined
to be either not applicable or are expected to have minimal impact on the Company’s consolidated financial position and results
of operations. The Company currently is considering ASUs that impact the following areas:
Revenue recognition - In May 2014, the FASB issued guidance codified in ASC 606, "Revenue from Contracts with
Customers," which amends the guidance in former ASC 605 "Revenue Recognition." The core principle of the guidance is that
an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects
the consideration to which the entity expects to be entitled in exchange for those goods or services. This will be achieved in a
five-step process. Enhanced disclosures also will be required. This guidance is effective on a retrospective basis--either to each
reporting period presented or with the cumulative effect of initially applying this guidance recognized at the date of initial
application--for annual reporting periods, including interim reporting periods within those annual reporting periods, beginning
after December 15, 2017.
The Company will adopt the requirements of the new standard on January 1, 2018, utilizing the modified retrospective
transition method. Upon adoption, the Company will recognize a $1.8 million cumulative effect of adopting this ASU as an
adjustment to the opening balance of retained earnings, and will recognize approximately $2.0 million of certain licensing fees
as a reduction to both revenues and operating expenses on the consolidated statements of comprehensive income. Prior periods
will not be retrospectively adjusted.
Leases - In February 2016, the FASB issued an ASU on lease accounting, whereby lease assets and liabilities, whether
arising from leases that are considered operating or finance (capital) and have a term of twelve months or less, will be
67
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 2017, 2016, and 2015
recognized on the balance sheet. Enhanced qualitative disclosures also will be required. This guidance is 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. Early adoption is permitted. The Company expects that the adoption of this ASU will not have a material impact to
its consolidated financial statements and related disclosures, and it will adopt this ASU on January 1, 2019.
Stock-based compensation - In March 2016, the FASB issued an ASU on employee share-based payment accounting.
The ASU requires that excess tax benefits and deficiencies be recognized as income tax benefit or expense, rather than as
additional paid-in capital. In addition, the ASU requires that excess tax benefits be recorded in the period that shares vest or
settle, regardless of whether the benefit reduces taxes payable in the same period. Cash flows related to excess tax benefits will
be included as an operating activity, and no longer classified as a financing activity, in the statement of cash flows. This
guidance was effective for annual reporting periods, including interim reporting periods within those annual reporting periods,
beginning after December 15, 2016. The guidance related to the recognition of excess tax benefits and deficiencies as income
tax benefit or expense was effective on a prospective basis, and the guidance related to the timing of excess tax benefit
recognition was effective using a modified retrospective transition method with a cumulative-effect adjustment to equity as of
the beginning of the period in which the guidance is adopted. The cash flow presentation guidance was effective on a
retrospective or prospective basis.
The Company implemented this ASU on January 1, 2017 and recorded a cumulative-effect adjustment of $51.5 million to
credit retained earnings for deferred tax assets related to net operating losses that arose from excess tax benefits, which the
Company has deemed realizable. In addition to this:
• At the time of adoption and on a prospective basis, the primary impact of adoption was the recognition of excess tax
benefits and deficiencies, including deferred tax assets related to net operating losses that arose from excess tax
benefits which the Company has deemed realizable, in the income tax provision (rather than in additional paid-in
capital). This caused income taxes to differ from taxes at the statutory rates in 2017. For the year ended
December 31, 2017, the Company recognized an estimated $20.1 million decrease to the income tax provision,
which resulted in a $20.1 million increase to income from continuing operations and net income attributable to
Blucora, a $0.45 increase to basic earnings per share, and a $0.43 increase to diluted earnings per share.
• The Company applied the cash flow presentation guidance on a retrospective basis, restating the consolidated
statements of cash flows to present excess tax benefits as an operating activity (rather than a financing activity). For
the year ended December 31, 2016, this resulted in an increase to cash provided by operating activities from
continuing operations of $16.0 million and a corresponding decrease to cash used by financing activities from
continuing operations. The restatement had no impact on total cash flows for the period presented.
The ASU also clarifies that payments made to tax authorities on an employee's behalf for withheld shares should be
presented as a financing activity in the statement of cash flows, allows the repurchase of more of an employee's shares for tax
withholding purposes without triggering liability accounting, and provides an accounting policy election to account for
forfeitures as they occur. The cash flow presentation requirements for payments made to tax authorities on an employee's
behalf had no impact to any periods presented, since such cash flows historically have been presented as a financing activity.
The Company is not planning to change tax withholdings and will continue to estimate forfeitures in determining the amount of
compensation cost to be recognized in each period.
Measurement of Credit Losses - In June 2016, the FASB issued an ASU which requires companies to measure credit
losses utilizing a methodology that reflects expected credit losses and requires a 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 those 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.
Statement of cash flows and restricted cash - In November 2016, the FASB issued an ASU on the classification and
presentation of changes in restricted cash on the statement of cash flows. The ASU requires that the statement of cash flows
explains the change during the period in the total of cash, cash equivalents, and restricted cash; therefore, the amounts described
as restricted cash should be included with cash and cash equivalents when reconciling the beginning and end of period total
68
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 2017, 2016, and 2015
amounts on the statement of cash flows. This guidance is effective for annual reporting periods, including interim reporting
periods within those annual reporting periods, beginning after December 15, 2017. Early adoption is permitted. The guidance
is effective on a retrospective basis. The Company elected to early adopt this guidance as of January 1, 2017. The
reclassification was not material to the periods presented and had no impact on total cash flows, income from continuing
operations, or net income attributable to Blucora for the periods presented.
Note 3: Business Combinations
HD Vest: On December 31, 2015 and pursuant to the Purchase Agreement dated October 14, 2015, the Company acquired
HD Vest for $613.7 million, including cash acquired of $38.9 million and after a $1.8 million final working capital adjustment
in the first quarter of 2016. In connection with the acquisition, certain members of HD Vest management rolled over a portion
of the proceeds they would have otherwise received at the closing into shares of the acquisition subsidiary through which the
Company consummated the purchase of HD Vest. A portion of those shares were sold to the Company in exchange for a
promissory note. After giving effect to the rollover shares and related purchase of the rollover shares for the promissory note,
the Company indirectly owns 95.52% of HDV Holdings, Inc., with the remaining 4.48% non-controlling interest held
collectively by the rollover management members and subject to put and call arrangements exercisable beginning in 2019.
The acquisition was funded by a combination of cash on hand and the TaxAct - HD Vest 2015 credit facility, under which
the Company borrowed $400.0 million (see "Note 9: Debt").
Valuations were as follows (in thousands):
Tangible assets acquired, including cash acquired of $38,874
Liabilities assumed
Identifiable net assets acquired
Fair value adjustments for intangible assets:
Advisor relationships
Sponsor relationships
Curriculum
Proprietary technology
Trade name
Fair value of intangible assets acquired
Purchase price allocation:
Cash paid
Plus: promissory note
Plus: noncontrolling interest
Less: escrow receivable
Purchase price
Less: identifiable net assets acquired
Less: fair value of intangible assets acquired
Plus: deferred tax liability related to intangible assets
$
$
$
$
$
Fair value
78,681
(21,212)
57,469
240,300
16,500
800
13,600
52,500
323,700
612,288
6,400
15,038
(20,000)
613,726
(57,469)
(323,700)
123,484
Excess of purchase price over net assets acquired, allocated to goodwill
$
356,041
The Company's estimates, at the time of acquisition, of the economic lives of the acquired intangible assets are 20 years
for the advisor relationships, 18 years for the sponsor relationships, 4 years for the curriculum, 6 years for the proprietary
technology, and the trade name is estimated to have an indefinite life. Goodwill consists largely of the increased cross-serving
opportunities and expanded addressable markets for both HD Vest and TaxAct, neither of which apply for separate recognition,
and is not expected to be deductible for income tax purposes.
69
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 2017, 2016, and 2015
The primary areas of the acquisition accounting that were not yet finalized at the time of the acquisition related to income
and non-income based taxes, certain contingent liability matters, indemnification assets, and residual goodwill. In the third and
fourth quarters of 2016, the Company recorded a combined $2.1 million increase to net assets acquired and a corresponding
decrease to goodwill, predominantly related to the finalization of federal and state tax returns and associated analyses for pre-
acquisition tax periods. Acquisition accounting is now considered closed.
The promissory note was with the President of HD Vest and was scheduled to be paid over a three-year period. In
December 2017, the Company fully repaid the remaining $3.2 million outstanding. The note bore interest at a rate of 5% per
year.
The Purchase Agreement dictated that the Company place into escrow $20.0 million of additional consideration that was
contingent upon HD Vest's 2015 earnings performance. The contingent consideration threshold was not achieved; therefore, the
amount was recorded as a receivable as of December 31, 2015 and paid to the Company in the first quarter of 2016.
The gross contractual amount of accounts receivable, including commissions receivable, acquired was $21.6 million, all
of which the Company has substantially collected.
During 2015, the Company incurred transaction costs of $11.0 million, which were recognized in "General and
administrative expense," and $21.8 million in debt discount and issuance-related costs on the new credit facility.
Pro Forma Financial Information of the HD Vest Acquisition (unaudited):
The financial information in the table below summarizes the combined results of operations of Blucora and HD Vest 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 (a)
amortization expense on the definite-lived intangible assets identified in this acquisition, debt-related expenses associated with
the credit facility that was used to finance the acquisition, and estimated stock-based compensation related to Blucora share-
based award grants to HD Vest employees; and to remove (b) acquisition-related transaction costs and debt-related expenses
associated with HD Vest's previous debt facility, the latter of which was paid off and closed at the acquisition date. 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 (in thousands):
Revenue
Loss from continuing operations
Year ended
December 31, 2015
$
$
437,447
(12,793)
SimpleTax: On July 2, 2015, TaxAct acquired all of the equity of SimpleTax, a provider of online tax preparation services
for individuals in Canada, for approximately $1.9 million in cash and additional consideration of up to $3.7 million that is
contingent upon product availability and revenue performance over a three-year period. The estimated fair value of the
contingent consideration as of the acquisition date was $3.3 million. See "Note 7: Fair Value Measurements" for additional
information related to the fair value measurement of the contingent consideration.
The acquisition of SimpleTax is strategic to TaxAct and intended to expand its operations. SimpleTax is included in the
Tax Preparation segment. Intangible assets acquired amounted to approximately $0.9 million, consisting of customer
relationships and proprietary technology both of which have finite lives. Identifiable net liabilities assumed were not material.
Goodwill amounted to $4.5 million. Pro forma results of operations have not been presented because the effects of this
acquisition were not material to the Company’s consolidated results of operations.
70
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 2017, 2016, and 2015
Note 4: Discontinued Operations
On October 14, 2015, the Company announced its plans to focus on the technology-enabled financial solutions market, as
more fully described in "Note 1: Description of the Business." The Strategic Transformation included plans to divest the Search
and Content and E-Commerce businesses. Financial condition, results of operations, cash flows, and the notes to financial
statements reflect the Search and Content and E-Commerce businesses as discontinued operations for all periods presented.
Amounts in discontinued operations include previously unallocated depreciation, amortization, stock-based compensation,
income taxes, and other corporate expenses that were attributable to the Search and Content and E-Commerce businesses.
On November 17, 2016, the Company closed on an agreement with YFC, under which YFC acquired the E-Commerce
business for $40.5 million, which included a working capital adjustment. Of this amount, $39.5 million was received in the
fourth quarter of 2016 and the remaining $1.0 million was received in the first half of 2017. The Company used all of the
proceeds to pay down debt and recognized a loss on sale of the E-Commerce business of approximately $52.2 million.
On August 9, 2016, the Company closed on an agreement with OpenMail, under which OpenMail acquired substantially
all of the assets and assumed certain specified liabilities of the Search and Content business for $45.2 million. The Company
used all of the proceeds to pay down debt and recognized a loss on sale of the Search and Content business of approximately
$21.6 million. Under a separate agreement, the Company is subleasing to InfoSpace the office space that InfoSpace is using
currently. The rent payments and September 2020 termination date are consistent with the underlying non-cancelable operating
lease.
Summarized financial information for discontinued operations is as follows (in thousands):
Years ended December 31,
2017
2016
2015
Major classes of items in net income (loss):
Revenues
Operating expenses
Other income (loss), net
Income (loss) from discontinued operations before income taxes
Loss on sale of discontinued operations before income taxes
Discontinued operations, before income taxes
Income tax benefit (expense)
$
— $
—
—
—
—
—
—
Discontinued operations, net of income taxes
$
— $
$
227,989
(211,395)
(719)
15,875
(73,800)
(57,925)
(5,196)
(63,121) $
352,077
(391,702)
(2,673)
(42,298)
—
(42,298)
14,950
(27,348)
71
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 2017, 2016, and 2015
Business exit costs: In conjunction with the Strategic Transformation, the Company incurred business exit costs of
approximately $4.5 million, which primarily were recorded in discontinued operations in the fourth quarter of 2015 and the first
quarter of 2016. The following table summarizes the activity in the business exit cost liability (in thousands):
Balance as of December 31, 2015
Charges
Payments
Balance as of December 31, 2016
Charges
Payments
Balance as of December 31, 2017
Employee-
Related
Termination
Costs
$
$
994
3,552
(4,396)
150
—
—
150
Goodwill and other intangible assets: The Company tested the goodwill and trade names related to Search and Content
and E-Commerce for impairment as of October 31, 2015, due to the Company's October 2015 announcement of its plans to
divest these businesses and their resulting classification as held for sale. In the fourth quarter of 2015, the Company recorded
goodwill impairments of $15.1 million and $33.8 million related to these reporting units, respectively. In addition, in the fourth
quarter of 2015, the Company recorded trade name impairments of $5.9 million and $4.2 million related to the HSW and
Monoprice trade names, respectively.
The impairments of goodwill and intangible assets were recorded in discontinued operations. The Company classified the
fair value of its reporting units, goodwill, and trade names within Level 3 because they were valued using discounted cash
flows, which have significant unobservable inputs related to the weighted-average cost of capital and forecasts of future cash
flows.
The Company determined that the impairments related to Search and Content and E-Commerce were indicators requiring
the review of the Search and Content and E-Commerce long-lived assets for recoverability. The results of this review indicated
that the carrying values of the Search and Content and E-Commerce long-lived assets were recoverable.
Debt: On November 22, 2013, Monoprice entered into a credit facility agreement, which consisted of a $30.0 million
revolving credit loan and a $40.0 million term loan, both of which have since been settled. The final maturity date of the credit
facility was November 22, 2018 but became immediately due and payable upon the sale of Monoprice in November 2016.
Monoprice initially borrowed $50.0 million under the credit facility, from both the revolving credit loan and the term
loan, and had net repayment activity of $25.0 million in 2016 and no repayment activity in 2017 as Monoprice was no longer
owned by the Company. Monoprice had the right to permanently reduce, without premium or penalty, the credit facility at any
time. In accordance with this provision, Monoprice repaid the outstanding amount under the term loan in full in 2015, which
was included in the net repayment activity for 2015 and resulted in the write-down of the remaining unamortized discount and
debt issuance costs related to the term loan.
Note 5: Restructuring
On October 27, 2016, the Company announced plans to relocate its corporate headquarters by June 2017 from Bellevue,
Washington to Irving, Texas. In connection with this plan, the Company has incurred restructuring costs of approximately $7.0
million. These costs will primarily be recorded in "Restructuring" on the consolidated statements of comprehensive income and
within corporate-level activity for segment purposes. The Company has also incurred costs that were not included as
restructuring, such as recruiting and overlap in personnel expenses as it transitions positions to Texas ("Strategic
Transformation Costs"). The restructuring is now substantially complete and it is expected to be completed by early 2018.
The following table summarizes the activity in the restructuring liability (in thousands):
72
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 2017, 2016, and 2015
Employee-
Related
Termination
Costs
Contract
Termination
Costs
Fixed Asset
Impairments
Stock-Based
Compensation
Other Costs
Total
Balance as of December 31, 2015
Restructuring charges
Non-cash
Balance as of December 31, 2016
Restructuring charges
$
$
Payments
Non-cash
— $
— $
— $
— $
— $
4,234
—
—
—
—
—
(364)
364
—
—
4,234
$
— $
— $
— $
— $
261
(3,293)
—
(241)
(535)
1,457
1,878
—
(1,878)
1,148
—
(1,148)
55
(55)
—
Balance as of December 31, 2017
$
1,202
$
681
$
— $
— $
— $
—
3,870
364
4,234
3,101
(3,883)
(1,569)
1,883
Employee-related termination costs primarily include severance benefits, under both ongoing and one-time benefit
arrangements that were paid at termination dates throughout 2017, with the majority paid in the second half of 2017. Contract
termination costs and fixed asset impairments were incurred in connection with the Bellevue facility's operating lease and
related fixed assets, which are described further in the next two paragraphs, respectively. Stock-based compensation primarily
includes the impact of equity award modifications associated with employment contracts for certain individuals impacted by the
relocation, as well as forfeitures that were recorded for severed employees. Other costs include office relocation costs.
The Company has a non-cancelable operating lease that runs through 2020 for its former corporate headquarters in
Bellevue, Washington, which the Company occupied until May 2017. In March 2017, the Company agreed to a sublease for
the entire Bellevue facility, which was effective June 1, 2017 and expires on September 30, 2020, consistent with the
underlying operating lease. Under that sublease agreement, the Company will not recover all of its remaining lease rental
obligations (including common area maintenance costs and real estate taxes) and, therefore, recognized a net loss on sublease of
$0.4 million.
The Company fully impaired the $1.9 million carrying value of the leasehold improvements and the office furniture and
equipment that would not be fully recovered in connection with this lease.
All of these items were recorded in the first quarter of 2017.
Note 6: Goodwill and Other Intangible Assets
The following table presents goodwill by reportable segment (in thousands):
Balance as of December 31, 2015
Purchase accounting adjustments
Foreign currency translation adjustment
Balance as of December 31, 2016
Foreign currency translation adjustment
Balance as of December 31, 2017
Tax Preparation
Total
Wealth Management
356,386
$
(345)
—
356,041
—
$
192,573
$
—
127
192,700
296
$
356,041
$
192,996
$
548,959
(345)
127
548,741
296
549,037
The purchase accounting adjustment in 2016 primarily related to the final working capital adjustment and the finalization
of federal and state tax returns associated with the acquisition of HD Vest. The 2016 activity is described in "Note 3: Business
Combinations."
73
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 2017, 2016, and 2015
Intangible assets other than goodwill consisted of the following (in thousands):
December 31, 2017
December 31, 2016
Weighted
Average
Amortization
Period (months)
Gross
carrying
amount
Accumulated
amortization
Net
Gross
carrying
amount
Accumulated
amortization
Net
25
216
192
24
47
189
$101,711
240,300
16,500
800
43,895
$ (75,105) $ 26,606
206,089
14,667
400
8,443
(34,211)
(1,833)
(400)
(35,452)
$101,690
240,300
16,500
800
43,855
$ (62,381) $ 39,309
223,162
15,583
600
11,524
(17,138)
(917)
(200)
(32,331)
403,206
(147,001)
256,205
403,145
(112,967)
290,178
72,000
$475,206
— 72,000
$ (147,001) $328,205
72,000
$475,145
—
72,000
$ (112,967) $362,178
Definite-lived intangible assets:
Customer relationships
Advisor relationships
Sponsor relationships
Curriculum
Technology
Total definite-lived
intangible assets
Indefinite-lived intangible assets:
Trade names
Total
Amortization expense was as follows (in thousands):
Statement of comprehensive income line item:
Cost of revenue
Amortization of other acquired intangible assets
Total
Years ended December 31,
2017
2016
2015
$
$
195
33,807
34,002
$
$
812
33,331
34,143
$
$
7,546
12,757
20,303
Expected amortization of definite-lived intangible assets held as of December 31, 2017 is as follows (in thousands):
2018
Statement of comprehensive income (loss) line item:
2019
2020
2021
2022
Thereafter
Total
Cost of revenue
$
101
$
— $
— $
— $
— $
— $
101
Amortization of other acquired intangible
assets
Total
33,061
32,321
19,969
17,138
14,843
138,772
256,104
$ 33,162
$ 32,321
$ 19,969
$ 17,138
$ 14,843
$138,772
$256,205
74
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 2017, 2016, and 2015
Note 7: Fair Value Measurements
In accordance with ASC 820, "Fair Value Measurements and Disclosures," certain of the Company's assets and liabilities,
which are carried at fair value, 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’s own assumptions.
The fair value hierarchy of the Company's 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
Quoted prices in
active markets
using identical
assets
(Level 1)
Significant other
observable inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
December 31,
2017
Cash equivalents: money market and other funds
Total assets at fair value
$
$
Acquisition-related contingent consideration liability $
Total liabilities at fair value
$
10,857
10,857
2,689
2,689
$
$
$
$
— $
— $
— $
— $
10,857
10,857
$
$
— $
— $
—
—
2,689
2,689
Fair value measurements at the reporting date using
Quoted prices in
active markets
using identical
assets
(Level 1)
Significant other
observable inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
December 31,
2016
Cash equivalents:
U.S. government securities
Money market and other funds
Commercial paper
Taxable municipal bonds
Total cash equivalents
Available-for-sale investments:
Debt securities:
U.S. government securities
Commercial paper
Time deposits
Taxable municipal bonds
Total debt securities
Total assets at fair value
$
2,749
$
— $
2,749
$
4,090
1,999
1,301
10,139
2,000
1,998
807
2,296
7,101
$
17,240
$
$
$
—
—
—
—
—
—
—
—
—
4,090
1,999
1,301
10,139
2,000
1,998
807
2,296
7,101
— $
17,240
$
—
—
—
—
—
—
—
—
—
—
—
— $
— $
— $
— $
3,421
3,421
Acquisition-related contingent consideration liability $
Total liabilities at fair value
$
3,421
3,421
75
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 2017, 2016, and 2015
A reconciliation of Level 3 items measured at fair value on a recurring basis was as follows (in thousands):
Acquisition-related contingent consideration liability:
Balance at beginning of year
Payment
Revaluation
Foreign currency transaction loss
Balance at end of year
Years ended December 31,
2017
2016
$
$
3,421
(946)
—
214
$
2,951
—
391
79
2,689
$
3,421
The contingent consideration liability is related to the Company's acquisition of SimpleTax (see "Note 3: Business
Combinations"), and the related payments that began in 2017 and are expected to continue annually through 2019.As of
December 31, 2017, the Company could be required to pay up to an undiscounted amount of $2.7 million. This liability is
included within Level 3 of the fair value hierarchy because the Company values it utilizing inputs not observable in the market.
Specifically, the Company has determined the fair value of the contingent consideration liability based on a probability-
weighted discounted cash flow analysis, which includes assumptions related to estimating revenues, the probability of payment
(100%), and the discount rate (9%). A decrease in estimated revenues or an increase in the discount rate would decrease the fair
value of the contingent consideration liability. As of December 31, 2017, the Company recorded approximately $1.3 million in
"Accrued expenses and other current liabilities" and $1.4 million in "Other long-term liabilities" on the consolidated balance
sheets.
In 2016, the Company had non-recurring Level 3 fair value measurements related to the repurchase of its Notes. See
"Note 9: Debt" for details. In 2015, the Company had non-recurring Level 3 fair value measurements related to its reporting
units and various intangible assets as part of goodwill and intangible asset impairment reviews. See "Note 4: Discontinued
Operations" for details.
The contractual maturities of the debt securities classified as available-for-sale at December 31, 2016 were less than one
year.
The cost and fair value of available-for-sale investments were as follows (in thousands):
Balance as of December 31, 2016
Note 8: Balance Sheet Components
Amortized cost
7,102
$
Gross unrealized
gains
Gross unrealized
losses
Fair value
$
— $
(1) $
7,101
Prepaid expenses and other current assets, net consisted of the following (in thousands):
Prepaid expenses
Other current assets, net
Total prepaid expenses and other current assets, net
December 31,
2017
2016
$
$
6,972
393
7,365
$
$
5,990
331
6,321
76
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 2017, 2016, and 2015
Property and equipment, net consisted of the following (in thousands):
Computer equipment and data center
Purchased software
Internally-developed software
Office equipment
Office furniture
Leasehold improvements and other
Accumulated depreciation
Capital projects in progress
Total property and equipment, net
December 31,
2017
2016
$
7,121
$
4,200
2,728
557
801
3,244
18,651
(12,081)
6,570
3,261
9,831
$
$
6,884
4,420
2,478
745
1,532
6,246
22,305
(12,269)
10,036
800
10,836
Total depreciation expense was $4.1 million, $4.5 million, and $2.3 million for the years ended December 31, 2017, 2016,
and 2015, respectively.
Unamortized internally-developed software, which excludes software projects in progress that are included in capital
projects in progress above, was $4.1 million and $1.7 million at December 31, 2017 and 2016, respectively. The Company
recorded amortization expense for internally-developed software of $0.9 million, $1.0 million, and $0.3 million for the years
ended December 31, 2017, 2016, and 2015, respectively.
Accrued expenses and other current liabilities consisted of the following (in thousands):
Salaries and related expenses
Accrued interest on Notes (see Note 9)
Other
Total accrued expenses and other current liabilities
Note 9: Debt
The Company’s debt consisted of the following (in thousands):
December 31,
2017
2016
$
$
12,451
$
—
7,126
19,577
$
12,506
1,837
4,185
18,528
December 31, 2017
Unamortized
December 31, 2016
Unamortized
Principal
amount
Discount
Debt
issuance
costs
Net
carrying
value
Principal
amount
Discount
Debt
issuance
costs
Net
carrying
value
Senior secured credit facility $ 345,000
$ (1,455) $ (5,464) $ 338,081
$
— $
— $
— $
—
TaxAct - HD Vest 2015
credit facility
Convertible Senior Notes
Note payable, related party
—
—
—
Total debt
$ 345,000
—
—
—
—
— 260,000
— 172,859
(7,124)
(6,913)
—
(5,295)
(1,770)
—
247,581
164,176
3,200
3,200
$ 436,059
$ (14,037) $ (7,065) $ 414,957
—
—
$ (1,455) $ (5,464) $ 338,081
—
77
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 2017, 2016, and 2015
Senior secured credit facility: In May 2017, Blucora entered into a credit agreement with a syndicate of lenders in order
to (a) refinance the credit facilities previously entered into in 2015 to finance the HD Vest acquisition (the "TaxAct - HD Vest
2015 credit facility"), (b) redeem its Notes that were outstanding at the time, and (c) provide a term loan and revolving line of
credit for future working capital, capital expenditure and general business purposes (the "Blucora senior secured credit
facilities"). Consequently, the TaxAct - HD Vest 2015 credit facility was repaid in full and the commitments thereunder were
terminated. The Blucora senior secured credit facilities in the aggregate amount of $425.0 million consist of a committed $50.0
million revolving credit facility (including a letter of credit sub-facility), and a $375.0 million term loan facility, and mature in
May 2022 and May 2024, respectively. Obligations under the Blucora senior secured credit facilities are guaranteed by certain
of Blucora's subsidiaries and secured by the assets of Blucora and those 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 agreement. As of December 31, 2017, Blucora was in compliance with all of the financial and operating covenants.
Principal payments on the term loan are payable quarterly in an amount equal to 0.25% of the initial outstanding principal.
Under the initial term loan, the applicable interest rate margin was 3.75% for Eurodollar Rate loans and 2.75% for ABR loans.
In November 2017, the Blucora senior secured credit facilities agreement was amended in order to refinance and reprice the
initial term loan, such that the applicable interest rate margin is 3.0% for Eurodollar Rate loans and 2.0% for ABR loans.
Through December 31, 2017, Blucora has made prepayments of $30.0 million towards the term loan.
Depending on Blucora’s Consolidated First Lien Net Leverage Ratio (as defined in the credit agreement), the applicable
interest rate margin on the revolving credit facility is from 2.75% to 3.00% for Eurodollar Rate loans and 1.75% to 2.00% for
ABR loans. Interest is payable at the end of each interest period. Blucora has not borrowed any amounts under the revolving
credit facility.
Blucora also has the right to prepay the term loan or outstanding amounts under the revolving credit facility without any
premium or penalty (other than customary Eurodollar breakage costs). Prepayments of the term loan are subject to certain
prepayment minimums. Beginning with the fiscal year ending December 31, 2018, Blucora will be required to make annual
prepayments of the term loan in an amount equal to a percentage of excess cash flow of Blucora during the applicable fiscal
year from 0% to 50.0%, depending on the Consolidated First Lien Net Leverage Ratio (as defined in the credit agreement) for
such fiscal year.
As of December 31, 2017, the credit facility's principal amount approximated its fair value as it is a variable rate
instrument and the current applicable margin approximates current market conditions.
In connection with the refinancing, the Company performed an analysis by creditor and determined that the refinancing
qualified as an extinguishment of the TaxAct - HD Vest 2015 credit facilities and the Notes. As a result, the Company
recognized a loss on debt extinguishment during the three months ended June 30, 2017, which was recorded in "Other loss, net"
on the consolidated statements of comprehensive income and consisted of the following (in thousands):
Loss on debt extinguishment - TaxAct - HD Vest 2015 credit facility
Loss on debt extinguishment - Convertible Senior Notes
Total loss on debt extinguishment
$
$
9,593
6,715
16,308
The amount for the TaxAct - HD Vest 2015 credit facility included the write-off of the remaining unamortized discount
and debt issuance costs. For the Notes, the Company allocated the cash paid first to the liability component of the Notes based
on the fair value of the redeemed Notes. The fair value was based on a discounted cash flow analysis of the Notes' principal
and related interest payments, using a discount rate that approximated the current market rate for similar debt without
conversion rights. The difference between the fair value and net carrying value of the repurchased Notes was recognized as a
loss and recorded in "Other loss, net" on the consolidated statements of comprehensive income. No amount was allocated to
the equity component of the Notes, since the fair value of the liability component exceeded the cash paid.
TaxAct - HD Vest 2015 credit facility: On December 31, 2015, TaxAct and HD Vest entered into an agreement with a
syndicate of lenders for the purposes of financing the HD Vest acquisition and providing future working capital flexibility for
TaxAct and HD Vest. The credit facility consisted of a $25.0 million revolving credit loan--which included a letter of credit and
78
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 2017, 2016, and 2015
swingline loans--and a $400.0 million term loan for an aggregate $425.0 million credit facility. The final maturity dates of the
revolving credit loan and term loan were December 31, 2020 and December 31, 2022, respectively. Obligations under the
credit facility were guaranteed by TaxAct Holdings, Inc. and HD Vest Holdings, Inc. and were secured by the equity of the
TaxAct and HD Vest businesses. While Blucora was not a party to the agreement, it had guaranteed the obligations of TaxAct
and HD Vest under the credit facility, secured by its equity in TaxAct Holdings, Inc.
TaxAct and HD Vest borrowed $400.0 million under the term loan and had net repayment activity of $140.0 million in
2016. Principal payments on the term loan were payable quarterly and were between 0.625% and 1.875% of outstanding
principal, depending upon TaxAct and HD Vest's combined net leverage of EBITDA ratio. The interest rate on the term loan
was variable at the London Interbank Offered Rate (“LIBOR”), subject to a floor of 1.00%, plus a margin of 6.00%, payable at
the end of each interest period.
The Company had repayment activity of $64.0 million and $140.0 million during 2017 and 2016, respectively. These
repayments resulted in the acceleration of a portion of the unamortized discount and debt issuance costs, which were recorded
in "Other loss, net" on the consolidated statements of comprehensive income.
TaxAct 2013 credit facility: On August 30, 2013, TaxAct entered into an agreement to refinance a 2012 credit facility on
more favorable terms. TaxAct had net repayment activity of $51.9 million in 2015. This credit facility was repaid in full in the
second quarter of 2015 and subsequently closed, at which point the remaining debt issuance costs were written off. The write-
off of the debt issuance costs was recorded in "Other loss, net" on the consolidated statements of comprehensive income (see
"Note 14: Other Loss, Net" for details).
Convertible Senior Notes: On March 15, 2013, the Company issued $201.3 million aggregate principal amount of its
Notes, inclusive of the underwriters’ exercise in full of their over-allotment option of $26.3 million. In June 2017, the Company
redeemed almost all of the outstanding Notes for cash with proceeds from the senior secured credit facility. The Company
received net proceeds from the offering of approximately $194.8 million after adjusting for debt issuance costs, including the
underwriting discount.
The Notes were issued under an indenture dated March 15, 2013 (the “Indenture”) by and between the Company and
The Bank of New York Mellon Trust Company, N.A., as Trustee. There were no financial or operating covenants relating to the
Notes.
During 2016, the Company repurchased $28.4 million of the Notes' principal for cash of $20.7 million. The Company
allocated the cash paid first to the liability component of the Notes based on the fair value of the repurchased Notes. The fair
value was based on a discounted cash flow analysis of the Notes' principal and related interest payments, using a discount rate
that approximated the current market rate for similar debt without conversion rights. The difference between the fair value and
net carrying value of the repurchased Notes was recognized as a gain, since the Notes were repurchased below par value, and
recorded in "Other loss, net" on the consolidated statements of comprehensive income (see "Note 14: Other Loss, Net" for
details). No amount was allocated to the equity component of the Notes, since the fair value of the liability component
exceeded the cash paid. The repurchase also resulted in the write-down of a portion of the unamortized discount and debt
issuance costs, which was also recorded in "Other loss, net" on the consolidated statements of comprehensive income.
The following table sets forth total interest expense related to the Notes (in thousands):
Contractual interest expense (Cash)
Amortization of debt issuance costs (Non-cash)
Accretion of debt discount (Non-cash)
Total interest expense
Effective interest rate of the liability component
Years ended December 31,
2017
3,141
401
1,567
5,109
$
$
$
2016
7,619
939
3,666
$
2015
8,553
989
3,866
$ 12,224
$ 13,408
7.32%
7.32%
7.32%
Note payable, related party: In December 2017, the Company fully repaid $3.2 million of a note payable with the former
President of HD Vest that arose in connection with the acquisition of HD Vest. The note was scheduled to be paid over a three-
79
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 2017, 2016, and 2015
year period, with 50% paid in year one ($3.2 million paid in December 2016), 40% to be paid in 2017, and 10% to be paid in
2018. Certain members of HD Vest management rolled over a portion of the proceeds they would have otherwise received at
the acquisition's closing into shares of the acquisition subsidiary through which the Company consummated the purchase of HD
Vest. The former President of HD Vest sold a portion of his shares to the Company in exchange for the note. The note bore
interest at a rate of 5% per year.
Note 10: Commitments and Contingencies
The Company's contractual commitments are as follows for years ending December 31 (in thousands):
2018
2019
2020
2021
2022
Thereafter
Total
Operating lease commitments:
Operating lease obligations
$
4,201
$
4,281
$
(1,265)
(1,288)
2,936
5,528
—
2,993
3,600
2,000
3,946
(991)
2,955
3,600
3,500
$
2,493
$
1,979
$
1,678
$
—
—
—
2,493
2,100
3,500
1,979
600
3,500
14,719
1,678
3,400
332,500
20,584
18,578
(3,544)
15,034
18,828
345,000
95,572
15,172
15,157
15,068
14,872
Sublease income
Net operating lease
commitments
Purchase commitments
Debt commitments
Interest payable
Acquisition-related contingent
consideration liability
1,304
1,385
—
—
—
—
2,689
Total
$
24,940
$
25,135
$
25,123
$
22,965
$
20,798
$ 358,162
$ 477,123
Operating lease commitments: As discussed in "Note 5: Restructuring", the Company has a non-cancelable operating
lease that runs through 2020 for its former corporate headquarters in Bellevue, Washington, which the Company occupied until
May 2017. In March 2017, the Company agreed to a sublease for the entire Bellevue facility, which was effective June 1, 2017
and expires on September 30, 2020, consistent with the underlying operating lease.
The Company leases office space, and these leases are classified as operating leases. Net rent expense under those
operating leases was as follows (in thousands):
Rent expense
Less: sublease rent income
Net rent expense
Years ended December 31,
2017
2016
2015
$
$
2,972
(594)
2,378
$
$
3,793
(342)
3,451
$
$
1,237
—
1,237
Purchase commitments: The Company's purchase commitments consist primarily of non-cancelable service agreements
for its data centers, a sponsorship marketing agreement, commitments with a vendor to provide cloud computation services of
$10.1 million over the next four years, and a commitment to switch to a new clearing firm provider that has been selected by
the Company by the third quarter of 2018.
Debt commitments and interest on Notes: The Company’s debt commitments are based upon contractual payment terms
and consist of the outstanding principal related to the Blucora senior secured credit facility. For further detail regarding the
credit facility, see "Note 9: Debt."
Acquisition-related contingent consideration liability: The contingent consideration liability is related to the Company's
acquisition of SimpleTax (see "Note 3: Business Combinations" and "Note 7: Fair Value Measurements"), and the related
payments that began in 2017 and are expected to continue annually through 2019.
80
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 2017, 2016, and 2015
Collateral pledged: The Company has pledged a portion of its cash as collateral for certain of its property lease-related
banking arrangements. At December 31, 2017, the total amount of collateral pledged under these standby letters of credit was
$0.7 million.
Off-balance sheet arrangements: The Company has no off-balance sheet arrangements other than operating leases.
Litigation: From time to time, the Company is subject to various legal proceedings or claims that arise in the ordinary
course of business. The Company accrues 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. Following is a brief description of the more significant legal
proceedings. Although the Company believes that resolving such claims, individually or in aggregate, will not have a material
adverse impact on its financial statements, these matters are subject to inherent uncertainties.
On December 12, 2016, a shareholder derivative action was filed by Jeffrey Tilden against the Company, as a nominal
defendant, Andrew Snyder, who was a director of the Company at that time, certain companies affiliated with Mr. Snyder, a
former officer of the Company, GCA Savvian Advisors, LLC ("GCA Savvian"), and certain other current and former members
of the Blucora Board of Directors, in the Superior Court of the State of California in and for the County of San Francisco. The
complaint asserted claims for breaches of fiduciary duty against certain current and former directors of the Company related to
the Company’s share repurchases and the Company’s acquisitions of HD Vest and Monoprice. The complaint asserted a claim
against GCA Savvian, the Company’s financial advisor in connection with the HD Vest acquisition, for aiding and abetting
breaches of fiduciary duty. The complaint also asserted a claim for insider trading against Mr. Snyder, a former director of the
Company, and certain companies affiliated with Mr. Snyder. The derivative action did not seek monetary damages from the
Company. The complaint sought corporate governance reforms, declaratory relief, monetary damages from the other
defendants, attorney’s fees and prejudgment interest.
On March 10, 2017, the Company filed a motion to dismiss for improper venue as a result of a forum selection
provision in the Company’s bylaws that required the plaintiff to file his derivative fiduciary duty claims in Delaware. Other
defendants also filed motions to quash the summons due to a lack of personal jurisdiction over them. On July 25, 2017, the
Court granted the Company's motion to dismiss. The case was stayed by the Court until November 22, 2017 so that Tilden
could file a complaint in Delaware, after which the case was dismissed without further order of the Court.
On November 21, 2017, Tilden filed a shareholder derivative action in the Delaware Court of Chancery asserting the
same claims against the same defendants and seeking the same relief as the San Francisco Superior Court lawsuit. On January
31, 2018, Blucora filed a motion to dismiss the Delaware complaint and the court has not yet ruled on this motion.
The Company has entered into indemnification agreements in the ordinary course of business with its officers and
directors, and the agreement entered into with GCA Savvian in connection with the acquisition of HD Vest also contained
indemnification provisions. Pursuant to these agreements, the Company may be obligated to advance payment of legal fees and
costs incurred by the defendants pursuant to the Company’s obligations under these indemnification agreements and applicable
Delaware law.
Note 11: Stockholders' Equity
Stock incentive plan: The Company may grant incentive or non-qualified stock options, stock, restricted stock, RSUs,
stock appreciation rights and performance shares or performance units to employees, non-employee directors, and consultants.
The Company granted options and RSUs during 2017 and 2016 under its 2015 Incentive Plan (as amended and restated),
as well as options and RSUs during 2016 under its 2016 Inducement Plan. The Company granted options and RSUs during
2015 under its Restated 1996 Flexible Stock Incentive Plan. Options and RSUs generally vest over a period of three years, with
one-third vesting one year from the date of grant and the remainder vesting ratably thereafter on a semi-annual basis, and expire
seven years from the date of grant. There are a few exceptions to this vesting schedule, which provide for vesting at different
rates or based on achievement of performance targets.
The Company issues new shares upon the exercise of options and upon the vesting of RSUs. If an option or RSU is
surrendered or otherwise unused, the related shares will continue to be available.
81
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 2017, 2016, and 2015
Employee Stock Purchase Plan: The 2016 Employee Stock Purchase Plan (“ESPP”) permits eligible employees to
contribute up to 15% of their base earnings toward the twice-yearly purchase of Company common stock, subject to an annual
maximum dollar amount. The purchase price is the lesser of 85% of the fair market value of common stock on the first day or
on the last day of an offering period. An aggregate of 1.0 million shares of common stock are authorized for issuance under the
ESPP. Of this amount, 0.9 million shares were available for issuance as of December 31, 2017. The Company issues new
shares upon purchase through the ESPP.
Stock repurchase program: In February 2013, the Company’s Board of Directors approved a stock repurchase program
whereby the Company could purchase its common stock in open-market transactions. The repurchase period concluded in May
2016. Repurchased shares were retired and resumed the status of authorized but unissued shares of common stock. The
Company had the following open-market share purchase activity, exclusive of purchase and administrative costs (in thousands,
except per share data):
Year ended December 31, 2017
Year ended December 31, 2016
Year ended December 31, 2015
— $
— $
551
$
Total Number
of Shares
Purchased
Average
Price Paid
per Share
Total Cost
— $
— $
—
—
14.01
$
7,713
Other comprehensive income: The following table provides information about activity in other comprehensive income
(in thousands):
Balance as of December 31, 2014
Other comprehensive income (loss)
Balance as of December 31, 2015
Other comprehensive income
Balance as of December 31, 2016
Other comprehensive income
Balance as of December 31, 2017
Note 12: Stock-Based Compensation
Unrealized gain
(loss) on
investments
Foreign
currency
translation
adjustment
$
$
(1,113) $
1,103
(10)
9
(1)
1
— $
— $
(517)
(517)
137
(380)
376
(4) $
Total
(1,113)
586
(527)
146
(381)
377
(4)
A summary of the general terms of stock options and RSUs at December 31, 2017 was as follows:
Number of shares authorized for awards
Options and RSUs outstanding
Options and RSUs expected to vest
Options and RSUs available for grant
11,333,964
4,720,099
4,347,251
5,160,506
82
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 2017, 2016, and 2015
The following activity occurred under the Company’s stock incentive plans:
Options
Weighted
average exercise
price
Intrinsic value
(in thousands)
Weighted
average
remaining
contractual term
(in years)
Stock options:
Outstanding December 31, 2016
Granted
Forfeited
Expired
Exercised
Outstanding December 31, 2017
Exercisable December 31, 2017
Vested and expected to vest after December 31, 2017
$
8,635,815
$
1,474,266
(1,233,344) $
(197,957) $
(4,872,858) $
$
3,805,922
$
1,225,062
$
3,538,301
11.21
16.87
9.94
19.71
11.41
13.13
13.37
13.17
$
$
$
35,855
12,389
33,301
5.2
4.1
5.2
RSUs:
Outstanding December 31, 2016
Granted
Forfeited
Vested
Outstanding December 31, 2017
Expected to vest after December 31, 2017
Supplemental information is presented below:
Stock options:
Weighted average grant date fair value per share granted
Total intrinsic value of options exercised (in thousands)
Total fair value of options vested (in thousands)
RSUs:
Weighted average grant date fair value per unit granted
Total intrinsic value of units vested (in thousands)
Total fair value of units vested (in thousands)
Stock units
Weighted
average grant
date fair value
Intrinsic value
(in thousands)
Weighted
average
remaining
contractual term
(in years)
$
1,473,797
373,529
$
(169,202) $
(763,947) $
$
914,177
$
808,950
8.45
18.39
10.34
8.43
12.10
12.00
$
$
20,205
17,878
0.8
0.8
Years ended December 31,
2017
2016
2015
$
$
$
$
$
$
6.25
44,405
5,566
18.39
14,642
6,469
$
$
$
$
$
$
2.46
437
7,064
7.82
5,755
8,981
$
$
$
$
$
$
3.65
1,072
4,416
13.67
5,437
6,742
83
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 2017, 2016, and 2015
The Company included the following amounts for stock-based compensation expense, which related to stock options,
RSUs, and the ESPP, in the consolidated statements of comprehensive income (in thousands):
Cost of revenue
Engineering and technology
Sales and marketing
General and administrative
Restructuring
Total in continuing operations
Discontinued operations
Total
Total excluded and capitalized as part of internal-use software
Years ended December 31,
2017
2016
2015
774
984
2,376
7,519
1,148
12,801
—
$
166
$
1,640
2,548
9,774
(364)
13,764
1,471
96
484
771
7,343
—
8,694
4,402
12,801
$
15,235
$
13,096
— $
— $
135
$
$
$
In the fourth quarter of 2016, the Company recorded stock-based compensation expense in connection with the corporate
headquarters relocation announcement. See "Note 5: Restructuring" for additional information.
To estimate stock-based compensation expense, the Company used the Black-Scholes-Merton valuation method with the
following assumptions for stock options granted:
Years ended December 31,
Risk-free interest rate
Expected dividend yield
Expected volatility
Expected life
2017
2016
1.2% - 1.94% 0.83% - 1.59% 0.21% - 1.33%
2015
0%
0%
0%
39% - 45%
35% - 45%
34% - 40%
3.8
3.4
3.0
The risk-free interest rate was based on the implied yield available on U.S. Treasury issues with an equivalent remaining
term. The Company last paid a dividend in 2008. The expected volatility was based on historical volatility of the Company’s
stock for the related expected life of the award. The expected life of the award was based on historical experience, including
historical post-vesting termination behavior.
As of December 31, 2017, total unrecognized stock-based compensation expense related to unvested stock awards is as
follows:
Stock options
RSUs
Total for continuing operations
Note 13: Segment Information
Expense
(in thousands)
Weighted average period
over which to be recognized
(in years)
$
$
5,569
4,016
9,585
1.9
1.2
1.6
The Company has two reportable segments: the Wealth Management segment and the Tax Preparation segment. The
Wealth Management segment consists of the HD Vest business, which was acquired on December 31, 2015. HD Vest is
included in Blucora's results of operations beginning on January 1, 2016. The Tax Preparation segment consists of the TaxAct
business. As a result of the Strategic Transformation and the 2016 divestitures of the Search and Content and E-Commerce
segments, those former segments are included in discontinued operations.
84
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 2017, 2016, and 2015
The Company’s chief executive officer is its 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 Company does not allocate certain general and administrative costs (including personnel and overhead costs), stock-
based compensation, depreciation, and amortization of intangible assets to the reportable segments. Such amounts are reflected
in the table under the heading "Corporate-level activity." In addition, the Company does not allocate other loss, net and income
taxes to the reportable segments. The Company does not account for, and does not report to management, its assets or capital
expenditures by segment other than goodwill and intangible assets used for impairment analysis purposes.
Information on the reportable segments currently presented to the Company’s chief operating decision maker and a
reconciliation to consolidated net income are presented below (in thousands):
Revenue:
Wealth Management
Tax Preparation
Total revenue
Operating income (loss):
Wealth Management
Tax Preparation
Corporate-level activity
Total operating income (loss)
Other loss, net
Income tax benefit
Discontinued operations, net of income taxes
Net income (loss)
Years ended December 31,
2017
2016
2015
$
$
348,620
160,937
509,557
$
316,546
139,365
455,911
—
117,708
117,708
50,916
72,921
(75,800)
48,037
(44,551)
25,890
—
$
29,376
$
46,296
66,897
(76,076)
37,117
(39,781)
1,285
(63,121)
(64,500) $
—
56,984
(61,791)
(4,807)
(12,542)
4,623
(27,348)
(40,074)
Revenues by major category within each segment are presented below (in thousands):
Wealth Management:
Commission
Advisory
Asset-based
Transaction and fee
Total Wealth Management revenue
Tax Preparation:
Consumer
Professional
Total Tax Preparation revenue
Years ended December 31,
2017
2016
2015
$
160,241
$
150,125
$
145,694
26,297
16,388
348,620
147,084
13,853
160,937
$
$
$
129,417
22,653
14,351
316,546
126,289
13,076
139,365
$
$
$
$
$
$
—
—
—
—
—
105,367
12,341
117,708
85
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 2017, 2016, and 2015
Note 14: Other Loss, Net
"Other loss, net" consisted of the following (in thousands):
Interest income
Interest expense
Amortization of debt issuance costs
Accretion of debt discounts
Loss on debt extinguishment and modification expense (see Note 9 and
next table)
Gain on third party bankruptcy settlement
Other
Other loss, net
Years ended December 31,
2017
2016
2015
$
(110) $
(81) $
21,211
1,089
1,947
20,445
(116)
85
32,424
1,840
4,690
1,036
(172)
44
$
44,551
$
39,781
$
(609)
9,044
1,133
3,866
398
(1,128)
(162)
12,542
The gain on third party bankruptcy settlement related to amounts received in connection with ongoing distributions from
the Lehman Brothers estate, of which the Company is a creditor.
As discussed in Note 9: Debt, the Company repurchased some of the Notes and prepaid a portion of the TaxAct - HD Vest
2015 credit facility in 2016. In addition, the Company repaid the TaxAct 2013 credit facility in full in 2015 and subsequently
closed it. This activity resulted in the following amounts recorded to loss on debt extinguishment and modification expense (in
thousands):
Write-off of debt discount and debt issuance costs on TaxAct - HD Vest
2015 credit facility (related to closure)
Write-off of debt discount and debt issuance costs on the Notes (related to
termination)
Accelerated accretion of debt discount and amortization of debt issuance
costs on credit facilities (related to prepayments)
Gain on the Notes repurchased
Accelerated accretion of debt discount on the Notes (related to repurchase)
Accelerated amortization of debt issuance costs on the Notes (related to
repurchase)
Years ended December 31,
2017
2016
2015
$
9,593
$
— $
6,715
2,990
—
—
1,147
—
6,716
(7,724)
1,628
416
Total loss on debt extinguishment
$
20,445
$
1,036
$
—
—
—
—
—
398
398
Note 15: 401(k) Plan
The Company has a 401(k) savings plan covering its employees. Eligible employees may contribute through payroll
deductions. The Company may match the employees’ 401(k) contributions at the discretion of the Company’s Board of
Directors. Pursuant to a continuing resolution, the Company has matched a portion of the 401(k) contributions made by its
employees. The amount contributed by the Company ranges from 1% to 4% of an employee's salary, depending upon the
percentage contributed by the employee. For the years ended December 31, 2017, 2016, and 2015, the Company contributed
$1.6 million, $1.4 million, and $0.6 million, respectively, for employees, with the increase in 2016 due to the acquisition of HD
Vest on December 31, 2015.
86
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 2017, 2016, and 2015
Note 16: Income Taxes
Income tax benefit consisted of the following (in thousands):
Current:
U.S. federal
State
Foreign
Total current expense
Deferred:
U.S. federal
State
Foreign
Total deferred benefit
Income tax benefit
Years ended December 31,
2017
2016
2015
$
$
123
962
122
1,207
$
14,695
$
2,048
27
16,770
(26,012)
(1,022)
(63)
(27,097)
(25,890) $
(16,608)
(1,421)
(26)
(18,055)
(1,285) $
7,470
514
—
7,984
(12,004)
(538)
(65)
(12,607)
(4,623)
Income tax benefit differed from the amount computed by applying the statutory federal income tax rate of 35% as
follows (in thousands):
Years ended December 31,
2017
2016
2015
Income tax expense (benefit) at the statutory federal income tax rate
$
1,220
$
State income taxes, net of federal benefit
Deductible domestic manufacturing costs
Non-deductible compensation
Non-deductible acquisition-related transaction costs
Tax Legislation impact
Excess tax benefit due to stock-based compensation
Change in liabilities for uncertain tax positions
Change in valuation allowance
Other
Income tax benefit
582
—
283
—
(21,430)
(11,558)
(321)
4,974
(930) $
454
(1,225)
249
37
—
—
(86)
15
(6,072)
(15)
(787)
27
2,524
—
—
—
(223)
(77)
(4,623)
360
(25,890) $
$
201
(1,285) $
87
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 2017, 2016, and 2015
The tax effect of temporary differences and net operating loss carryforwards that gave rise to the Company’s deferred tax
assets and liabilities were as follows (in thousands):
Deferred tax assets:
Net operating loss carryforwards
Accrued compensation
Deferred revenue
Tax credit carryforwards
Stock-based compensation
Capital loss
Other, net
Total gross deferred tax assets
Valuation allowance
Deferred tax assets, net of valuation allowance
Deferred tax liabilities:
Depreciation and amortization
Discount on Notes
Other, net
Total gross deferred tax liabilities
Net deferred tax liabilities
December 31,
2017
2016
$
111,416
$
176,722
4,586
1,638
—
3,592
22,579
3,466
147,277
(109,242)
38,035
(81,182)
—
(286)
(81,468)
(43,433) $
$
12,069
3,740
10,925
9,689
37,680
5,798
256,623
(226,813)
29,810
(138,034)
(2,385)
(517)
(140,936)
(111,126)
At December 31, 2017, the Company evaluated the need for a valuation allowance for certain deferred tax assets based
upon its assessment of whether it is more likely than not that the Company will generate sufficient future taxable income
necessary to realize the deferred tax benefits. The Company maintains a valuation allowance against its deferred tax assets that
are capital in nature to the extent that it is more likely than not that the related deferred tax benefit will not be realized. The
Company also has a deferred tax asset related to the net operating losses ("NOLs") that it believes are more likely than not to
expire before utilization. If assumptions change and the Company determines it will be able to realize these NOLs, the tax
benefit relating to any reversal of the valuation allowance on deferred tax assets as of December 31, 2017 will be recognized as
a reduction of income tax expense.
On December 22, 2017, President Donald Trump signed into law "H.R. 1", formerly known as the Tax Cuts and Jobs Act
(the "Tax Legislation"). The Tax Legislation, which was effective January 1, 2018, significantly revised the U.S. tax code by,
among other things, lowering the corporate income tax rate from 35% to 21%. At December 31, 2017, the Company has not
completed its accounting for the tax effects of the Tax Legislation; however, in certain cases, as described below, we have made
a reasonable estimate of the effects on the Company’s existing deferred tax balances and the one-time transition tax. In other
cases, the Company has not been able to make a reasonable estimate and continues to account for those items based on its
existing accounting under ASC 740, Income Taxes, and the provisions of the tax laws that were in effect immediately prior to
enactment. For the items for which the Company was able to determine a reasonable estimate, the Company recognized a
provisional amount of approximately $21.4 million, which is recorded as additional income tax benefit in 2017. In all cases, the
Company will continue to make and refine its calculations as additional analysis is completed. In addition, the Company’s
estimates may also be affected as it gains a more thorough understanding of the tax law.
Provisional amounts: The Company remeasured certain deferred tax assets and liabilities based on the rates at which they
are expected to reverse in the future, which is generally 21%. However, the Company is still analyzing certain aspects of the
Tax Legislation and refining its calculations, which could potentially affect the measurement of these balances or potentially
give rise to new deferred tax amounts. The provisional amounts recorded related to the remeasurement of the Company’s net
deferred tax liabilities was approximately $21.4 million.
88
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 2017, 2016, and 2015
The changes in the valuation allowance for deferred tax assets are shown below (in thousands):
Balance at beginning of year
Increase (decrease) in valuation allowance - capital items
Decrease in valuation allowance - utilization of equity-based deferred tax assets
Increase in valuation allowance - other
Balance at end of year
Years ended December 31,
$
2017
226,813
(15,980)
(101,830)
239
2016
217,452
$
14,926
(5,684)
119
$
109,242
$
226,813
For the year ended December 31, 2017, the decrease in valuation allowance for capital items related primarily to the
enactment of a change in the federal tax rate from 35% to 21% for tax years beginning after December 31, 2017. The decrease
in valuation allowance for utilization of equity-based deferred tax assets related primarily to the enactment of a change in the
federal tax rate from 35% to 21% for tax years beginning after December 31, 2017, a $50.2 million decrease related to the
adoption of ASU 2016-09, which required a cumulative-effect adjustment for historical equity net operation losses (see Note 2:
Summary of Significant Accounting Policies for additional details) and a $0.4 million adjustment related to the future taxable
income expected to be available to partially utilize the carryforwards, offset by a $5.6 million increase related to the current
year generation of NOLs.
For the year ended December 31, 2016, the valuation allowance change included an increase of $14.9 million for
increases in deferred tax assets that were capital in nature, and a decrease of $5.7 million for the utilization of equity-based
deferred tax assets to reduce taxes payable.
As of December 31, 2017, the Company’s U.S. federal and state net operating loss carryforwards for income tax purposes
were $520.3 million and $32.7 million, respectively, which primarily related to excess tax benefits for stock-based
compensation. Prior to January 1, 2017, when the net operating loss carryforwards related to stock-based compensation were
recognized, the income tax benefit of those losses was accounted for as a credit to stockholders’ equity on the consolidated
balance sheets. Beginning on January 1, 2017, we recognized such income tax benefit on the consolidated financial statements,
as further described in the Recent accounting pronouncements section of "Note 2: Summary of Significant Accounting
Policies." If not utilized, the Company’s federal net operating loss carryforwards will expire between 2020 and 2037, with the
majority of them expiring between 2020 and 2024. Additionally, changes in ownership, as defined by Section 382 of the
Internal Revenue Code, may limit the amount of net operating loss carryforwards used in any one year.
A reconciliation of the unrecognized tax benefit balances is as follows (in thousands):
Balance at beginning of year
Gross increases for tax positions of prior years
Gross decreases for tax positions of prior years
Gross increases for tax positions of current year
Settlements
Lapse of statute of limitations
Balance at end of year
Years ended December 31,
2017
2016
2015
$
22,919
$
21,741
$
18,403
93
(31)
—
(66)
(290)
22,625
$
331
(93)
997
(57)
—
2,708
(9)
751
(112)
—
$
22,919
$
21,741
The total amount of unrecognized tax benefits that could affect the Company’s effective tax rate if recognized was $4.2
million and $4.5 million as of December 31, 2017 and 2016, respectively. The remaining $18.4 million has not been
recognized on the consolidated balance sheets as of December 31, 2017 and 2016, if recognized, would create a deferred tax
asset subject to a valuation allowance. The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction,
various state jurisdictions, and Canada. With few exceptions, the Company is no longer subject to U.S. federal, state and local,
or non-U.S. income tax examinations by tax authorities for years before 2013, although NOL carryforwards and tax credit
carryforwards from any year are subject to examination and adjustment for at least three years following the year in which they
89
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 2017, 2016, and 2015
are fully utilized. As of December 31, 2017, no significant adjustments have been proposed relative to the Company’s tax
positions.
During the years ended December 31, 2017, 2016, and 2015, the Company recognized less than $0.2 million of interest
and penalties related to uncertain tax positions. The Company had approximately $1.1 million and $1.0 million accrued for
interest and penalties as of December 31, 2017 and 2016, respectively.
Note 17: Net Income (Loss) Per Share
"Basic net income (loss) per share" is computed using the weighted average number of common shares outstanding
during the period. "Diluted net income (loss) per share" is computed 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, vesting of unvested
RSUs, and conversion or maturity of the Notes. Dilutive potential common shares are excluded from the computation of
earnings per share if their effect is antidilutive.
The computation of basic and diluted net income (loss) per share attributable to Blucora, Inc. is as follows (in thousands):
Numerator:
Income (loss) from continuing operations
Net income attributable to noncontrolling interests
Income (loss) from continuing operations attributable to Blucora, Inc.
Income (loss) from discontinued operations attributable to Blucora, Inc.
Net income (loss) attributable to Blucora, Inc.
Denominator:
Weighted average common shares outstanding, basic
Dilutive potential common shares
Weighted average common shares outstanding, diluted
Net income (loss) per share attributable to Blucora, Inc. - basic:
Continuing operations
Discontinued operations
Basic net income (loss) per share
Net income (loss) per share attributable to Blucora, Inc. - diluted:
Continuing operations
Discontinued operations
Diluted net income (loss) per share
Shares excluded
Years ended December 31,
2017
2016
2015
$
29,376
(2,337)
27,039
—
27,039
$
(1,379) $
(658)
(2,037)
(63,121)
(65,158) $
44,370
2,841
47,211
0.61
—
0.61
0.57
—
0.57
1,058
$
$
$
$
41,494
—
41,494
(0.05) $
(1.52)
(1.57) $
(0.05) $
(1.52)
(1.57) $
9,774
(12,726)
—
(12,726)
(27,348)
(40,074)
40,959
—
40,959
(0.31)
(0.67)
(0.98)
(0.31)
(0.67)
(0.98)
5,975
$
$
$
$
$
$
Shares were excluded from the computation of diluted earnings per common share for these periods because their effect
would have been anti-dilutive.
90
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
ITEM 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management evaluated, with the participation of our Chief Executive Officer and our Chief Financial Officer, the
effectiveness of our disclosure controls and procedures as of the end of the period covered by this Annual Report on Form 10-
K. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure
controls and procedures were effective as of December 31, 2017 to ensure that information we are required to disclose in
reports that we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to our
management, including our principal executive and principal financial officers, as appropriate to allow timely decisions
regarding required disclosure, and that such information is recorded, processed, summarized, and reported within the time
periods specified in the Securities and Exchange Commission rules and forms.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as
such term is defined in Exchange Act Rules 13a-15(f). Our internal control over financial reporting is designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of
compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of management, including our Chief Executive Officer and Chief
Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the
framework in Internal Control – Integrated Framework (2013 framework) issued by the Committee of the Sponsoring
Organizations of the Treadway Commission.
Based on our evaluation under the framework in Internal Control – Integrated Framework (2013 framework), our
management concluded that our internal control over financial reporting was effective as of December 31, 2017.
Ernst & Young LLP has audited the effectiveness of our internal control over financial reporting as of December 31, 2017
and its report is included below.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting that occurred during the fourth quarter of 2017 that
has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
91
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Blucora, Inc.
Opinion on Internal Control over Financial Reporting
We have audited Blucora, Inc.’s internal control over financial reporting as of December 31, 2017, based on criteria established
in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(2013 framework) (the COSO criteria). In our opinion, Blucora, Inc. (the Company) maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2017, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of Blucora, Inc. as of December 31, 2017 and 2016, the related consolidated
statements of comprehensive income (loss), stockholders' equity and cash flows for each of the three years in the period ended
December 31, 2017, and the related notes, and our report dated March 1, 2018 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report
on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control
over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Dallas, Texas
March 1, 2018
ITEM 9B. Other Information
None.
92
PART III
As permitted by the rules of the Securities and Exchange Commission, we have omitted certain information from Part III
of this Annual Report on Form 10-K. We intend to file a definitive Proxy Statement with the Securities and Exchange
Commission relating to our annual meeting of stockholders not later than 120 days after the end of the fiscal year covered by
this Annual Report on Form 10-K, and such information is incorporated by reference herein.
ITEM 10. Directors, Executive Officers and Corporate Governance
Certain information concerning our directors required by this Item is incorporated by reference to our Proxy Statement
under the heading "Information Regarding the Board of Directors."
Certain information regarding our executive officers required by this Item is incorporated by reference to our Proxy
Statement under the heading "Information Regarding Executive Officers."
Other information concerning our officers and directors required by this Item is incorporated by reference to our Proxy
Statement under the heading "Beneficial Ownership."
ITEM 11. Executive Compensation
The information required by this Item is incorporated by reference to our Proxy Statement under the headings
"Compensation Committee Report," "Compensation Committee Interlocks and Insider Participation," "Compensation
Discussion and Analysis," and "Compensation of Named Executive Officers."
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this Item is incorporated by reference to our Proxy Statement under the headings "Beneficial
Ownership" and "Equity Compensation Plans."
ITEM 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this Item is incorporated by reference to our Proxy Statement under the headings
"Information Regarding the Board of Directors" and "Audit Committee Report."
ITEM 14. Principal Accounting Fees and Services
The information required by this Item is incorporated by reference to our Proxy Statement under the heading "Audit
Committee Report."
93
PART IV
ITEM 15. Exhibits, Financial Statement Schedules
(a)
1. Consolidated Financial Statements
See Index to Consolidated Financial Statements at Item 8 of this report.
2. Financial Statement Schedules
All financial statement schedules required by Item 15(a)(2) have been omitted because they are not applicable or the
required information is presented in the Consolidated Financial Statements or Notes thereto.
3. Exhibits
The exhibits required by Item 601 of Regulation S-K are set forth below.
(b) Exhibits
94
INDEX TO EXHIBITS
Date of First Filing
October 14, 2015
Filed
Herewith
Exhibit
Number
10.1
Exhibit
Number
2.1#
2.2#
2.3#
3.1
3.2
3.3
10.1*
10.2*
10.3*
10.4*
10.5*
10.6*
10.7*
10.8*
Exhibit Description
Stock Purchase Agreement by an among HDV
Holdings, LLC, Blucora, Inc., Project Baseball
Sub, Inc. and HDV Holdings, Inc., dated
October 14, 2015
Asset Purchase Agreement between Blucora, Inc.,
Infospace LLC, OpenMail LLC and InfoSpace
Holdings LLC dated July 1, 2016
Stock Purchase Agreement between Blucora, Inc.,
Monoprice Holdings, Inc. and YFC-Boneagle
Electric Co., LTD, dated November 14, 2016
Restated Certificate of Incorporation, as filed with
the Secretary of the State of Delaware on
August 10, 2012
Certificate of Amendment to the Restated
Certificate of Incorporation of Blucora, Inc. filed
with the Secretary of State of Delaware on June 1,
2017
Amended and Restated Bylaws of Blucora, Inc.
Restated 1996 Flexible Stock Incentive Plan, as
amended and restated effective as of June 5, 2012
Blucora, Inc. 2015 Incentive Plan, as Amended and
Restated
Form of Blucora, Inc. 2015 Incentive Plan
Nonqualified Stock Option Grant Notice
Form of Blucora, Inc. 2015 Incentive Plan
Restricted Stock Unit Grant Notice
Form of Nonqualified Stock Option Agreement for
Executive Officers under the Blucora, Inc. 2015
Incentive Plan, as amended and restated
Form of Time-Based Restricted Stock Unit
Agreement for Executive Officers under the
Blucora, Inc. 2015 Incentive Plan, as amended and
restated
Form of Performance-Based Restricted Stock Unit
Agreement for Executive Officers under the
Blucora, Inc. 2015 Incentive Plan, as amended and
restated
Form of Nonqualified Stock Option Grant Notice
and Agreement for Nonemployee Directors
10.9*
10.10*
Form of Nonqualified Stock Option Grant Notice
and Agreement for Nonemployee Chairman of the
Board
Form of Director Restricted Stock Unit Grant
Notice and Award Agreement for Initial Grants to
New Directors under the Amended and Restated
Blucora, Inc. 2015 Incentive Plan
Form of Director Restricted Stock Unit Grant
Notice and Award Agreement for Annual Grants to
Directors under the Amended and Restated
Blucora, Inc. 2015 Incentive Plan
10.12* Blucora, Inc. 2016 Equity Inducement Plan
10.13* Amendment No. 1 to Blucora, Inc. 2016
10.11*
10.14*
10.15*
Inducement Plan
Form of Blucora, Inc. 2016 Inducement Plan
Nonqualified Stock Option Grant Notice
Form of Blucora, Inc. 2016 Inducement Plan
Restricted Stock Unit Grant Notice
95
Form
8-K
8-K
8-K
July 5, 2016
November 15, 2016
8-K (No.
000-25131)
August 13, 2012
8-K
June 5, 2017
2.1
2.1
3.1
3.1
8-K
S-8 (No.
333-198645)
February 28, 2017
September 8, 2014
3.2
99.1
DEF 14A
April 25, 2016
10-Q
10-Q
8-K
July 30, 2015
July 30, 2015
February 23, 2018
App-
endix A
10.2
10.3
10.2
8-K
February 23, 2018
10.3
8-K
February 23, 2018
10.4
10-Q
10-Q
April 28, 2016
April 28, 2016
10.3
10.4
10-Q
July 27, 2017
10.3
10-Q
July 27, 2017
10.4
S-8
S-8
10-K
10-K
January 29, 2016
October 14, 2016
99.1
99.1
February 24, 2016
10.41
February 24, 2016
10.42
10.16* Blucora, Inc. 2017 Executive Bonus Plan
10.17* Blucora, Inc. 2018 Annual Incentive Plan
10.18*
10.19*
10.20*
10.21*
10.22*
10.23*
10.24*
10.25*
Employment Agreement between Blucora, Inc. and
John S. Clendening dated March 12, 2016
First Amendment to Employment Agreement dated
September 5, 2017 between Blucora, Inc. and John
S. Clendening
Employment Agreement by and between Blucora,
Inc. and Sanjay Baskaran dated January 12, 2017
Employment Agreement by and between Blucora,
Inc., HD Vest, Inc., and Robert D. Oros dated
January 22, 2017
Employment Agreement by and between Blucora,
Inc. and Ann Bruder dated June 19, 2017
Employment Agreement by and between Blucora,
Inc. and Davinder Athwal dated February 14, 2018
Second Amended and Restated Employment
Agreement dated August 9, 2016, by and between
Project Baseball Sub, Inc. and Roger Ochs
Transition and Separation Agreement by and
between H. D. Vest, Inc. and Roger C. Ochs dated
January 22, 2017
10.26* Amended and Restated Employment Agreement,
amended and restated effective January 6, 2015
between Blucora, Inc. and Eric M. Emans
10.27* Amendment No. 1 to Amended and Restated
Employment Agreement by and between Blucora,
Inc. and Eric M. Emans dated January 22, 2016
10.1
10.1
10.1
10.1
10.1
10.1
10.2
10.1
10.3
8-K
8-K
8-K
8-K
February 8, 2017
February 23, 2018
March 15, 2016
September 5, 2017
8-K/A
January 13, 2017
8-K
January 23, 2017
10-Q
8-K
10-Q
8-K
8-K
8-K
July 27, 2017
February 15, 2018
October 27, 2016
January 23, 2017
10.2
January 22, 2015
10.1
January 22, 2016
10.1
10.28* Amendment No. 2 to Amended and Restated
10-Q
October 27, 2016
10.4
Employment Agreement by and between Blucora,
Inc. and Eric M. Emans dated January 6, 2015, as
amended
10.29* Consulting Agreement, dated October 25, 2017,
10.30*
between Blucora, Inc. and Eric M. Emans
Employment Agreement between Blucora, Inc. and
Mark Finkelstein, dated September 30, 2014
10.31* Amendment No. 1 to Employment Agreement
between Blucora, Inc. and Mark A. Finkelstein
dated September 30, 2014
10.33
10.32* Amendment No. 2 to Employment Agreement by
and between Blucora, Inc., and Mark. A.
Finkelstein dated September 30, 2014, as amended
January 22, 2016
Credit Agreement, dated May 22, 2017, among
Blucora, Inc., as borrower, and most of its direct
and indirect domestic subsidiaries, as guarantors,
and Credit Suisse AG, Cayman Islands Branch, as
administrative agent and collateral agent, and each
lender from time to time a party to the Credit
Agreement
First Amendment, dated November 28, 2017,
among Blucora, Inc., as borrower, and most of its
direct and indirect domestic subsidiaries, as
guarantors, and Credit Suisse AG, Cayman Islands
Branch, as administrative agent and collateral
agent, and each lender party to the First
Amendment
Office Lease between Blucora, Inc. and Plaza
Center Property LLC dated July 19, 2012
10.35
10.34
10-Q
10-Q
8-K
October 26, 2017
November 5, 2014
January 22, 2016
10.2
10.3
10.2
10-Q
October 27, 2016
10.5
8-K
May 23, 2017
10.1
8-K
November 29, 2017
10.1
10-Q (No.
000-25131)
November 1, 2012
10.2
96
10.36
10.37
10.38
10.39
10.40
10.41
21.1
23.1
24.1
31.1
31.2
32.1
32.2
101
First Amendment to Office Lease between
Blucora, Inc. and Plaza Center Property LLC dated
November 5, 2013
Sublease dated April 13, 2017, by and between
Blucora, Inc. and Xevo, Inc. related to that certain
Office Lease dated July 13, 2012 by and between
Blucora, Inc. and KBS SOR Plaza Bellevue, LLC
(as successor to Plaza Property Center LLC)
Lease Agreement, dated January 28, 2008, by and
between 2nd Story Software, Inc., PBI Properties,
Larry Kane Investments, L.C., and Swati Dandekar
for office space located at 1425 60th Street NE,
Suite 300, Cedar Rapids, Iowa
Amendment to Lease Agreement by and between
2nd Story Software, Inc., PBI Properties, Larry
Kane Investments, L.C., and Swati Dandekar for
office space located at 1425 60th Street NE, Suite
300, Cedar Rapids, Iowa, dated March 14, 2013
Blucora, Inc., 2016 Employee Stock Purchase Plan
Blucora, Inc. Non-Employee Director
Compensation Policy
Subsidiaries of the registrant
Consent of Ernst & Young LLP, Independent
Registered Public Accounting Firm
Power of Attorney (contained on the signature
page hereto)
Certification of Principal Executive Officer
pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002
Certification of Principal Financial Officer
pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002
Certification of Principal Executive Officer
pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
Certification of Principal Financial Officer
pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
The following financial statements from the
Company’s 10-K for the fiscal year ended
December 31, 2017, formatted in XBRL: (i)
Consolidated Balance Sheets, (ii) Consolidated
Statements of Comprehensive Income, (iii)
Consolidated Statements of Stockholders’ Equity,
(iv) Consolidated Statements of Cash Flows, and
(v) Notes to Consolidated Financial Statements
10-K
February 27, 2014
10.8
10-Q
May 4, 2017
10.5
10-K (No.
000-25131)
March 9, 2012
10.13
10-Q
May 2, 2013
10.5
DEF 14A
April 25, 2016
8-K
June 5, 2017
App-
endix B
10.1
X
X
X
X
X
X
X
X
*
#
Indicates a management contract or compensatory plan or arrangement.
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.
(c) Financial Statements and Schedules
See Item 15(a) above.
97
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant
has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
BLUCORA, INC.
By:
/s/ John S. Clendening
John S. Clendening
Chief Executive Officer and President
Date: March 1, 2018
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and
appoints Davinder Athwal and Ann J. Bruder, jointly and severally, his or her attorneys-in-fact, each with the power of
substitution, for him or her in any and all capacities to execute any amendments to this Annual Report on Form 10-K, and to
file the same, exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may lawfully do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities indicated and on the dates indicated.
Signature
Title
/s/ John S. Clendening
John S. Clendening
/s/ Davinder Athwal
Davinder Athwal
/s/ John Palmer
John Palmer
/s/ William L. Atwell
William L. Atwell
/s/ Steven Aldrich
Steven Aldrich
/s/ Lance G. Dunn
Lance G. Dunn
/s/ H. McIntyre Gardner
H. McIntyre Gardner
/s/ Georganne C. Proctor
Georganne C. Proctor
/s/ Christopher W. Walters
Christopher W. Walters
/s/ Mary S. Zappone
Mary S. Zappone
President, Chief Executive Officer, and Director
(Principal Executive Officer)
Chief Financial Officer
(Principal Financial Officer)
Vice President - Accounting
(Principal Accounting Officer)
Date
March 1, 2018
March 1, 2018
March 1, 2018
Chairman and Director
March 1, 2018
Director
Director
Director
Director
Director
Director
98
March 1, 2018
March 1, 2018
March 1, 2018
March 1, 2018
March 1, 2018
March 1, 2018
STOCK PERFORMANCE
Set forth below is a line graph comparing the cumulative total stockholder return of the common stock of
Blucora, Inc. to the cumulative total return of (i) the NASDAQ Index and (ii) the NASDAQ Other Finance Index
for the five-year period ending on December 31, 2017.
550.00
500.00
450.00
400.00
350.00
300.00
250.00
200.00
150.00
100.00
50.00
-
12/31/2012
12/31/2013
12/31/2014
12/31/2015
12/31/2016
12/31/2017
Blucora
NASDAQ Index
NASDAQ Other Finance Index
Safe Harbor Statement Under the Private Securities and Litigation Reform Act
This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933
and Section 21E of the Securities Exchange Act of 1934. When used in this report, terms such as “believes,”
“estimates,” “should,” “could,” “would,” “plans,” “expects,” “intends,” “anticipates,” “may,” “forecasts,”
“projects” and similar expressions and variations as they relate to the Company or its management are intended
to identify forward-looking statements. Actual results may differ significantly from management’s expectations
due to various risks and uncertainties including, but not limited to: our ability to effectively implement our future
business plans and growth strategy; our ability to effectively compete within our industry; our ability to attract
and retain customers; the availability of financing and our ability to meet our current and future debt service
obligations and comply with our debt covenants; our ability to generate strong investment performance for our
customers and the impact of the financial markets on our customers’ portfolios; 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 successfully make technology
enhancements and introduce new and improve on existing products and services; our expectations concerning
the revenues we generate from fees associated with the financial products that we distribute; our ability to
comply with laws and regulations, including, among others, those related to privacy protection and consumer
data; our ability to successfully transition our wealth management business to a new clearing platform and our
expectations concerning the benefits that may be derived therefrom; cybersecurity risks; our ability to maintain
our relationships with third party partners; the seasonality of our business; litigation risks; 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; our ability to develop, establish and maintain strong brands; our ability to
protect our intellectual property; and our ability to effectively integrate companies or assets that we acquire. A
more detailed description of these and certain other factors that could affect actual results is included in the
Company’s filings with the Securities and Exchange Commission. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date of this report. The Company
undertakes no obligation to update any forward-looking statements to reflect events or circumstances after the
date of this report.
STOCKHOLDER INFORMATION
Investor Information
To request copies of Blucora’s Annual Report on
Form 10-K or other financial information free of
charge, please call Investor Relations at
972.870.6000 or make a request in writing to
Investor Relations at our corporate address shown
below. You may also access these documents on
our corporate Web site at www.blucora.com
Securities
Blucora common stock is traded on the NASDAQ
Global Select market under the symbol “BCOR”.
Independent Registered
Public Accounting Firm
Ernst & Young LLP
2323 Victory Ave., Suite 2000
Dallas, TX 75219
Transfer Agent
Computershare Shareowner Services LLC
480 Washington Boulevard
Jersey City, NJ 07310-1900
888.581.9372
Corporate Headquarters
Blucora, Inc.
6333 State Highway 161, 4th Floor
Irving, TX 75038
972.870.6000
www.blucora.com
DIRECTORS
Steven Aldrich
Chief Product Officer, GoDaddy, Inc.
William L. Atwell, Chairman of the Board
Managing Director of Atwell Partners
John S. Clendening
Director, President and Chief Executive Officer of
Blucora, Inc.
Lance G. Dunn
Former Co-Founder & Former CEO of TaxAct
H. McIntyre Gardner
Private Investor and Former Senior Executive at
Merrill Lynch & Co. Inc.
Georganne C. Proctor
Former Chief Financial Officer of TIAA-CREF
Christopher W. Walters
Chief Executive Officer of Encompass Digital Media
Mary S. Zappone
Chief Executive Officer of Brace Industrial Group
EXECUTIVE OFFICERS
John S. Clendening
President and Chief Executive Officer
Davinder S Athwal
Chief Financial Officer and Treasurer
Ann J. Bruder
Chief Legal Officer and Secretary
Sanjay Baskaran
President of TaxACT, Inc.
Robert D. Oros
Chief Executive Officer of HD Vest
Mathieu F. Stevenson
Chief Marketing Officer