BCOR - Blucora

[KJP]

Both the interest and principal have to be paid.

 

Does principal really always have to be repaid?  What about a company that constantly rolls over its debt?  If you were always including the assumed amortization of that principal in your calculations, you might conclude that such a company never generates any free cash flow, yet the shareholders could be growing rich off the cash the business actually throws off. 

[wachtwoord]

Both the interest and principal have to be paid.

 

Does principal really always have to be repaid?  What about a company that constantly rolls over its debt?  If you were always including the assumed amortization of that principal in your calculations, you might conclude that such a company never generates any free cash flow, yet the shareholders could be growing rich off the cash the business actually throws off.

 

At some date in the future the company is discontinued and then the principal needs to be repaid. Nothing is eternal. The costs need to be subtracted from terminal value (which can go negative).

[KJP]

 

At some date in the future the company is discontinued and then the principal needs to be repaid. Nothing is eternal. The costs need to be subtracted from terminal value (which can go negative).

 

That's true in theory.  But is it relevant in practice if you have a stable/growing business.  (I'm not saying Blucora is or isn't such a business.)  Put another way, are you really worried about terminal values in year 75 of a DCF for Nestle?  Can you really value Nestle by projecting the future until the business is discontinued?  Or does it make more sense to assume that debt can be a perpetual part of the capital structure of such a business?

[wachtwoord]

That is what it's worth right? Assets are positive and liabilities are negative.

 

I always subtract net debt in my valuations. Also for Nestle (or any other company).

[KJP]

That is what it's worth right? Assets are positive and liabilities are negative.

 

I always subtract net debt in my valuations. Also for Nestle (or any other company).

 

I think we might be talking past each other.  My only point was that you can undervalue a business if you always subtract some assumed amount of principal amortization from the free cash flow the company is actually generating. 

[wachtwoord]

That is what it's worth right? Assets are positive and liabilities are negative.

 

I always subtract net debt in my valuations. Also for Nestle (or any other company).

 

I think we might be talking past each other.  My only point was that you can undervalue a business if you always subtract some assumed amount of principal amortization from the free cash flow the company is actually generating.

 

Sorry if I was unclear. I got what you were saying and was trying to argue why I disagree.

[kab60]

The thing is that if you value it on a debt free basis (EV) then it doesn't make sense to look at its earnings power including interest expense - hence why you usually value companies on a take private basis via EV/Ebitda. Obviously one needs to get comfortable with the capital structure and debt levels since it isn't taken private and they'll have a lot of leverage for some time.

[fareastwarriors]

Blucora Inc. (BCOR)

New CEO Brings Operational, Brand Leadership. More Catalysts to Come

BenchmarkCompany_NewCEOBringsOperationalBrandLeadershipMoreCatalyststoCome_Mar_16_2016.pdf

[kab60]

Q1 looks good. Earnings beat and raised guidance, but TaxAct volume down 5 pct. Glad I made it a big position.

 

First Quarter Highlights and Recent Developments

 

    Blucora named John S. Clendening as president and chief executive officer

    TaxAct revenue and segment income expected to grow approximately 18 percent and 20 percent respectively for the six months through June 30, 2016 compared to the same period last year

    HD Vest net revenue(1) grew 5 percent and segment income grew 26 percent in the first quarter compared to the same period last year

    Blucora paid down principal of Term B loan by 10 percent ($40M) and repurchased $28.4 million of convertible debt

 

http://www.blucora.com/releasedetail.cfm?ReleaseID=967774

[Rasputin]

hmm they lost 9% of the non professional users.  I'm not sure if it's a good thing to raise price and lose customers. 

[kab60]

hmm they lost 9% of the non professional users.  I'm not sure if it's a good thing to raise price and lose customers.

While I'd prefer to see growth in volume I'm pretty happy they can increase income 18-20 pct. y/o/y while declining. Will be interesting to hear managements thoughts on volume as well as why HD Vest performed better than expected.

[Rasputin]

I'm out this morning.  Thank you for bringing this up.

[kab60]

You're welcome. I expect to keep it till Q2 2017 when net debt is hopefully down to 300m and market value is up at 700m and then do a new assesment. :) The next year capital allocation mistakes should be negligent, but I'm afraid that'll change with reduced leverage. If I had a hedgefond I would go activist and change comp so it's based om ROIC/equivalent instead of the current growth in revenue/ebitda but I'm not quiet there yet... :)

 

Finally had the time to read the prepared remarks, but still haven't listened to the whole CC. Anyway, management adressed volume decline in TaxAct:

 

"We are explicitly focused on driving long term value and are less interested in

attracting customers with little to no monetization potential. So, we pivoted to a forms based offer

this year. This approach has two clear benefits: First it better diversifies our consumer software

revenue which relied heavily on state attach. Second, it better aligns our pricing and packaging

with the market. This is important because we are the value player and it allows consumers to

see TaxAct’s clear advantage versus the competition".

 

Clearly one has to be skeptical of these sorts of remarks but I think TaxAct management is pretty savy. Despite declining volume Ebitda is on track to grow 20 pct. in the first half of the year. I think that's pretty fucking crazy and their Ebitda margins of 58 pct. seems to underline that (as well as this being the 17th year of consecutive growth). Hd Vest also seems to have pretty impressive operating leverage.

 

Despite the run up I still think it's too cheap, but post 2016 it starts coming down to capital allocation again, so I'd cheering for someone to go activist and just return funds to shareholders and/or trying to increase volume at TaxAct.

[kab60]

I think the easy money have been made here, it was a quick double, but there's still a couple of catalysts; sale of non-core units and at least 30 pct of FCF returned via dividend/share repurchaces Q1 2017. I'm holding on.

 

[kab60]

TaxAct president to step down. I'd say it's definitely a negative as well as surprising: http://www.streetinsider.com/Management+Changes/Blucora,+Inc.+(BCOR)+TaxAct+President+Kintzel+to+Step+Down/11794063.html

[kab60]

Blucora divestments Infospace for 45m. Uses all of the proceeds to pay down debt. I didn't have high expectations for that, or the rest they're trying to sell, so glad they're getting it done.

[kab60]

Q2 earnings at the high range of guidance, lowered FY guidance ~4m, HD Vest seems to struggle while TaxAct continues to spit out cash (segment income up 50% y/o/y).

[kab60]

This has had an amazing run. I was out too soon, but it has popped 250 pct. in less than a year. Hindsight is 20/20 but I think this had a lot of obvious qualities and hope others on here earned a bit of money.

[ratiman]

Anybody still looking at this? Both TaxAct and the asset management side have been doing poorly but there is a new CEO who is going to focus more on TaxAct. Most of the value of the company is in TaxAct, it's a much better business, but strangely management has focused most of the capital and attention on the asset management side. The last CEO was from Schwab and that probably explains it. The strategy for the last few years has been to raise prices at TaxAct but that can only go so far. This could be very interesting if the new management manages to turn around TaxAct, which is kind of the Discover Card of tax prep. At $10 you are basically getting the asset management business for free. I don't know why the stock did a huge u-turn but I think some investors might've seen it as a growth stock when the TaxAct business was not really been run as a growth company, but the new CEO from McKinsey has said that is the new focus. The other problem is that moving the tax day to July 15 makes the numbers hard to compare with last year.

[kab60]

Yes, still follow. TaxAct is a fabolous business, and one arguably doesn't pay much to get a shot at them turning it around volume wise. They've been milking it for cash while as a standalone business most would probably spend a lot more on customer acquisition, so it's definately interesting. Their capital allocation has sucked however, they have been way too focused on their NOLs. Now the large debt makes that irrelevant since they're forced to pay it down. Would love for a large selloff where it might be hit hard due to the leverage.

[ratiman]

Interesting. $480M in debt doesn't seem like a lot when they don't really have much in the way of capex and they're only paying like $30M in interest. A further selloff seems unlikely, but who knows.

[kab60]

Interesting. $480M in debt doesn't seem like a lot when they don't really have much in the way of capex and they're only paying like $30M in interest. A further selloff seems unlikely, but who knows.

Sure, I'm not worried about the debt, but it's half of the EV now and they're committed to paying it down instead of say buybacks. So I basically agree, but cobsidering the broader market my hurdle is also higher than usually.

[ratiman]

Interesting. $480M in debt doesn't seem like a lot when they don't really have much in the way of capex and they're only paying like $30M in interest. A further selloff seems unlikely, but who knows.

Sure, I'm not worried about the debt, but it's half of the EV now and they're committed to paying it down instead of say buybacks. So I basically agree, but cobsidering the broader market my hurdle is also higher than usually.

 

In July they borrowed another $75M in addition to the $90M on the balance sheet so they're probably reloading to do another deal. They might talk about paying down debt but that's not what they're doing. I don't really mind the lack of buybacks because the stock wouldn't be this cheap if they were buying back shares.

[kab60]

Interesting. $480M in debt doesn't seem like a lot when they don't really have much in the way of capex and they're only paying like $30M in interest. A further selloff seems unlikely, but who knows.

Sure, I'm not worried about the debt, but it's half of the EV now and they're committed to paying it down instead of say buybacks. So I basically agree, but cobsidering the broader market my hurdle is also higher than usually.

 

In July they borrowed another $75M in addition to the $90M on the balance sheet so they're probably reloading to do another deal. They might talk about paying down debt but that's not what they're doing. I don't really mind the lack of buybacks because the stock wouldn't be this cheap if they were buying back shares.

I think that was just to make sure they'd be flush in liquidity. They seem very determined to get below 3xleverage now. I like the new CFO is, way back, a former portfolio manager. Hopefully he knows a bit about capital allocation which has sucked for ages here. On the other hand, the new CEO seems to have been onboard with the acquisition strategy despite them writing off half of HD Vest or some 300m four years down the road. Still trying to figure out the big selloff and not quiet sure I get it. It was cleary a strange tax season and thet basically timed their increased marketing very poorly in hindsight it seems. Or TurboTax is just getting too strong, so despite lots of marketing just a wee bit of volume growth? Anyone have Vince Martins writeup from SA? He was pretty spot on in 2016.

[ratiman]

Why not buy Jackson Hewitt? It went into bankruptcy in 2011 with less than $500mm debt so it would be a reasonable price and it's owned by a PE firm. It's a declining asset but that's what you use NOLs for and they could eliminate all the IT expense. As for the debt management lives to do deals. No way they sit on $165mm imo. Both the CEO and CFO bought shares recently.