Friday, May 3, 2013

BCOR: Strong Q1 Results and Q2 & FY '13 Guidance

Blucora (BCOR) reported Q1 results well ahead of expectations.  Total revenues and GAAP EPS came in at $165.3MM and $0.53, respectively, compared with the Street's $158.8MM and $0.50.  Management provided good guidance for Q2.  The stock was up 13%+ AH.  We continue to value it at $19/sh, representing a 29% upside from where it closed at on Thursday. 

Search segment performed much better than we expected, with a 34% Y/Y growth in revenues.  Both divisions of the search segment, distribution and owned & operated (O&O), performed well with 35% and 27% Y/Y revenue growth, respectively.  On the margin front, Q1 came in at 18%, flat compared to the prior year.  This is actually good news given the short-term negative impact of GOOG's new pricing policies that we had expected.

Tax preparation revenues for the quarter were $64.7MM, up approx. 5% Y/Y.  Tax segment operating margin of 48% displays the reason why BCOR acquired TaxAct last year.  Although impressive, this figure was below last year's 49%, but mainly due to BCOR's efforts to add more options to their tax preparation services via development and partnerships.  In addition, the Company was marketing its offering more aggressively during this year's tax season.  We note that this tax season's total do-it-yourself tax filings (or e-files) through TaxAct were 8% higher than last year, growth well above the 4% that IRS’ self-prepared e-file experienced.  In addition, TaxAct’s professional preparer filings were up 10% Y/Y.

Management also said it may begin looking at more possible acquisitions.  Given the success of the TaxAct acquisition that we are seeing, we are confident it will make decisions beneficial for the Company and shareholders.  We believe management will initially look at some of its smaller partners in search, given that some of them are having difficulties adjusting to GOOG's new policies.

For Q2, management guided revenues of $90.0MM - $94.0MM for the search segment, with operating margin between 17% and 18%.  The Company expects tax preparation revenues between $23.0MM and $23.5MM, with an impressive 63% - 64% margin.  We note that since the tax season was over on April 16, management is not planning to aggressively market TaxAct services for the remainder of Q2.  This explains the expectation of much higher margins.  Again, overall Q2 guidance was pretty positive.  The Company expects Q2 revenues between $113.0MM and $117.5MM, significantly above the $108.0MM consensus.  GAAP net income guidance was between $9.0MM and $10.0MM, in-line with expectations.  The GAAP EPS guidance was below consensus, but that is mainly because of a higher diluted sharecount due to convertible senior notes offered in Q1.

We have not made any significant changes to our FY '13 estimates.  For search, we still expect $387.9MM and $58.2MM in revenues and EBITDA, respectively.  We estimate $90.5MM revenues from tax preparation, which could generate around $44.0MM in EBITDA. 

Our sum-of-parts valuation, consisting of 6x search EBITDA, 8x tax preparation EBITDA, plus net cash of $148.7MM, results in a market cap of approx. $850MM, higher than our last estimate which was $790MM.  However, due to a higher sharecount, our per-share valuation of BCOR remains $19.  The stock was up 13.6% in AH trading.  While we hope such spike will continue during regular trading hours on Friday, some possibly disappointing macro news (such the April NFP count) may prevent that from happening.

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