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Blucora (AVTA)
Q4 2018 Earnings Conference Call
Feb. 14, 2019 8:30 a.m. ET


Prepared Remarks:


Good day, ladies and gentlemen and welcome to the Blucora Inc. fourth-quarter 2018 earnings conference call. [Operator instructions] As a reminder, this conference call may be recorded for replay purposes. It is now my pleasure to hand the conference over to Mr.

Bill Michalek, vice president, investor relations. Sir, you may begin.

Bill Michalek -- Vice President, Investor Relations

Thank you, and welcome, everyone, to Blucora's fourth-quarter 2018 earnings conference call. By now you should have the opportunity to review a copy of our earnings release and supplemental information. If you've not reviewed these documents, they're available on the investor relations section on our website at blucora.com. I'm joined today by John Clendening, chief executive officer; and Davinder Athwal, chief financial officer.

Before we begin, let me remind everyone that today's discussion contains forward-looking statements based on the environment as we currently see it and speak only as of the current date. As such, they include risks and uncertainties and actual results and events could differ materially from our current expectations. Please refer to our press release and other SEC filings, including our Forms 10-K, 10-Q and other reports, for more information on the specific risk factors. We assume no obligation to update our forward-looking statements.

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We will discuss both GAAP and non-GAAP financial measures today, and the earnings release available on blucora.com includes the full GAAP and non-GAAP reconciliations. With that, let me hand it over to John.

John Clendening -- Chief Executive Officer

Thanks, Bill, and good morning, everyone. We've a lot to cover today, including record annual performance for TaxAct and HD Vest and an update on tax season. I'll start with our results. Blucora concluded a very strong 2018 with fourth-quarter results which are generally in line or better than our target ranges.

fourth-quarter revenue improved by 3% year over year to $101.3 million. Adjusted EBITDA loss was $750,000, a 44% improvement year over year. Non-GAAP net loss of $7.5 million or $0.16 loss per share was $0.01 better than the high-end of our target range although down relative to the year-ago quarter, which included $3 million adjustment associated with recording tax benefits for equity awards. GAAP net loss was $60 million or $0.38 per diluted share also better-than-expected, although down relative to the year-ago quarter, which had included a $32 million benefit from tax reform.

Beyond the quarterly financials, in 2018, we took a number of important steps that we believe will build a stronger business go forward. Moving to the business unit discussion, I'll start first with tax preparation. As you may be aware, the tax season is off to a very slow start this year with total IRS filings down 12% and DDIY fund down 9% as of February 1. The drivers for us before we start to include customer uncertainty are all the impacts of tax reform as well as the timing of tax refund, given the government shutdown.

In addition, competitive intensity continues to be high with a volumetric leader increasing its working spend particularly around the DDIY offering and with the storefront players, focusing on refund advance. Against this backdrop, we came into the year with a goal of building in a successful last season and hopefully further grow monetized units despite the headwind of tax reform. To do so, we launched both new marketing campaigns and made important advance in their offer, which I'll discuss in a moment. At this relatively early point of the season, our performance lags the overall market with total starts, down 4% through February 11 and E-files, down 22%.

A few things I would note here are: number one, it's natural to see a lag between starts and E-files as people wait for tax forms; two, our business tends to make up ground in second peak given our focus on paying filers who disproportionally file later in the season; and three, we believe there are RAP in marketing spend substantially when compared to last year. Hence I would decompose the season so far into challenges and bright spots. On the former, our challenges centered upon free and low price point offerings. We're out of the gates with very slow, a few pre-filers and our basics SKU lags expectations as well.

You may recall that we introduced basic last year on March 1, and so some returning filers who last year filed for free are now in the basic offering. We didn't see any elasticity on basic and in second peak last season, but clearly, we're seeing it in this year's first peak. At the same time, there are number of bright spots including our start rate is rapidly improving as the season progresses, which means the gap is closing after a very slow start, completions are also improving as we head deeper into the season. Despite the challenges on basic, we're monetizing a significantly higher portion of our customers this year.

And we're ahead of expectations in total on completes for our highest price SKUs and thus, somewhat had on ARPU. All factors considered, we remain comfortable with our outlook for the first half of 2019, which includes revenue growth of 7.5% to 10% with segment margin of 56.7% to 57.7%. While overall units are expected to decline, with revenue growth being driven largely by ARPU including favorable SKU mix, our outlook assumes we're able to go monetized units modestly, based upon our experience early in the season as well as our expectation at basic to perform similar to last year in the second peak. We've unveiled a number of advancements and new benefits for customers that make the tax filings experience easier and more rewarding as part of a multiyear effort to improve the clients experience, I'd like to touch on a few of these.

In addition to bringing back some of our most popular features like our personalized deduction maximizer and $100,000 accuracy guarantee, some improvements the customers are seeing, a few include a newly refreshed and improved website that allows customers to quickly identify the product that best fits their needs. This also includes aligning the names for comparable product names with those of others in the industry for easier comparison. We've also upgraded our mobile experience. With the app earning a 4.5-star rating at Apple's app store, up from four stars last year.

We've also introduced Ten Minute taxes, that's streamlined and intuitive process to guide certain filers with simple returns to complete their returns in just 10 minutes or less. We want to enable our customers to do more in less time, so they can get back to the things that matter most to them. We're also excited to see the launch of our Refund Marketplace, which rewards filers with a bonus amount on a gift card up to the maximum of $599 when they allocate a portion of their refund to gift cards from an assortment of national retailers. This bonus can make the tax filing process better than free, where the filer can end up walking away from the TaxACT filing experience with more bonus money than they pay to file it with us.

Participating retailers for initial season so far with Amazon, Starbucks, Nike, Bed Bath and beyond, Apple iTunes, Home Depot, Parker Cruise Lines, Lowe's and several more. We also continue to had new data import partners with Commonwealth and National Financial on the list of new additions this season. In addition to the enhanced customer experience, we have some new and extended partnerships this season. As you'll recall, last year was our first year testing several types of new partnerships.

We're pleased to announce recently, that KeyBank, seeing the value of our partnership last season, was interested to sign a relationship. For this season in addition to KeyBank offering merchandising TaxAct software to their customers, TaxAct filers who have access to several KeyBank products including CDs, loans and credit cards. As well as the option to deposit their tax refund directly into KeyBank high-yield savings account. Consistent with our mission to provide most value to customers across their financial launch, many of these products will be offered with monetary, further bonuses or discounted rates.

For example, a 50 basis point reduction on loans or no interest for 15 months on credit cards. A couple other partner updates include a renewed agreement with Fidelity for this season, which includes better offer placement and broader exposure with their platform in constituent base. My Secure Advantage, a corporate EAP provider, was also renewed and expanded this year and increased by a factor of more than 10, the number of total possible end customers to which they could make the tax they've got available through their employer clients, this year up to a possible $28 million versus $2 million last year. We've also just gained distribution on Amazon and are moving to optimize merchandising and placement.

Our BluPrint financial assessment which utilizes our proprietary software to turn insights obtained from a tax return with customer consent into actual recommendations to improve their financial situation will also be back this season. Last year, more than 2 million customers asked us to help them and requested a BluPrint analysis. While we saw excellent interest, some customers found the list of opportunities overwhelming and known where to start. This year, we're introducing many new enhancements to bring a much more engaging, content-rich and guided experience to help customers capture more value, from tax expense to lowering their rate on debt or increasing their rate on savings, we'll make it easier along with the new roster of partners.

The full experience, which includes these improvements is planned for launch later this month. Meanwhile, within successful gaining consents. We believe we're the only online tax software company that offers this level of insight and guidance into the financial health of our customers and provides comprehensive solutions, which can save our customers real money, now and for years to come. This is phenomenal value creation opportunity for our customers.

Our sense of these initiatives will become much more meaningful in tax year 2019, after a season plus of experimentation. I'll further tax preparation by noting that we've also made significant improvement and our capabilities on this business in just the past few months. With regard to leadership, marketing, product management, and engineering, the team is moving aggressively to optimize all leverage for a strong tax year 2018 as well as set us up for next season. Turning now to wealth management.

As I mentioned earlier, HD Vest had an excellent 2018 despite the market volatility. For the year, revenue grew 7% and we achieved nearly $1 billion of net flows into advisory asset at $957 million, setting a new record. More importantly, 2018 in this business was about positioning and laying the groundwork for future growth, as we've consistently shared, we look to build long-term value to driving increased total client assets and increased monetization of those assets through the adoption of advisory services and maximizing the capture of the economics and client cash. Our approach is straightforward: number one, adopt such practices; number two, provide the tools and services to allow advisors to maximize the productivity practices; and three, extend our unique reason to win around the creation of Tax Alpha.

In 2018, we made substantial progress in segment stage for step function increases in clients, advisor and shareholder value. And expect to build on each of these in 2019 despite the challenges we're all seeing with our market valuations and a less certain economic and interest rate environment. The degree of change we achieved cannot be overstated and with change, comes a degree of initial variability and uncertainty. As you'll look back on the prior year, it occurred to me that it would be useful to divide our progress around segment stage for future growth at value creation into three areas: number one, unequivocal progress, areas where we just nailed it and are full speed ahead; number two, line of sight, areas where we made clear progress and can share goal, but there's still some work to be done; and three ramping, areas where we made -- also made clear progress but are still maturing to achieving the maximum value.

In the unequivocal progress category, I will start with recruiting. While adding new advisors tends to drive value in a medium plus time frame rather than the short-term, I could not be more pleased with our results last year. In 2018, we recruited roughly double we did in 2017, in terms of total new client assets and more than $700 million. First, we added about 120 new advisors in our core strategy of turning tax gross into wealth advisors.

This includes our efforts to penetrate larger recurring practices, a new focus for us. For example, last quarter, we added another large accounting firm with six locations, 13,000 individual clients and 600 business customers. Once fully up and running, that would be about another $100 million prospecting opportunity in total client assets. Second, we also earned a business of 175 established advisors, two of these advisors, which were particularly large joined in the fourth quarter with the associated assets continuing to onboard this quarter and our partnership with Drake continues to yield results with more than 1,100 leads generated to date.

There's a handful of them already on board, presenting $250 million or so in total client asset opportunity at this point. I'd also put advisory growth in this category, which, as I noted, approached the $1 billion mark at $957 million including $350 million in the fourth quarter. Advisory assets as a percentage of total client assets ended the year at a new high water mark at just about 30%. As advisory assets continue to grow faster than total, there's one component along with trailing commission and sweep revenue that further reduces our dependence on transaction and increases our recurring revenue rate.

Our recurring revenue rate reached 82% in the fourth quarter, up nearly 400 basis points year over year. And we have the initiatives that we're ramping throughout 2019 that will accelerate this shift. Lastly, in this category, our conversion to the Fidelity's National Financial results in a step function increase in revenue from cash sweep. In the line of sight category, speaking of conversion, as you know the conversion efforts not only increase our revenue, there's also an important part of an effort to accelerate growth and provide the best technology, service, and support to HD Vest advisors.

We embarked on an ambitious conversion project over more than 15 months that has created transformed advisor experience with next-generation technology and new capabilities like highly integrated business processing, data aggregation, and a world-class client portal. The conversion, which went live at end of September, was unique and it was essentially three conversions in one, including Fidelity's National Financial, investment and Fidelity's eMoney. This was a big change for advisors. Wanted to take a little longer to adapt to than we than they had anticipated.

To bring you fully current, the asset conversion is essentially complete with over 99.9% of assets converted. A very positive outcome. However, we saw clear increase in cycle times in the fourth quarter as advisors and our home office team worked to get accustomed with the new technologies, policies, and processes that came along with the simultaneous conversion. Thus, tenant increased response times and also have the effect of lowering transaction activity as advisors turned inward to support existing clients rather than business development.

As you all know from our prior calls, we take very seriously the concept that over time, we win more for shareholders and we deliver great value to clients and advisors. It became clear in the fourth quarter that we need to do a better job, supporting advisors on these conversions. So we decided to take contract support to an elevated level to help smooth up the process, in addition to committing resources from our platform partners. We're making good progress on this front and expect that it won't be too long before we get back to form and then significantly exceed our pre-conversion productivity capabilities.

While we expect to see elevated expenses and possibly a continuation of subdued transactional activity through the first half of the year. While there are start-up cost, the stack of National Financial, eMoney and Envestnet represents a large upgrade over our prior capabilities. We believe we have one of the best commercial grade platforms in the industry and we will be making proprietary investments toward advisory experience over time. We're already seeing strong adoption, new capabilities like eMoney where the Prime is ripping 25% of total client asset enabled on the portal.

We're also seeing conversion of new advisors that simply would not have come to us without these improvements. They will also be an important financial driver. The national financial portion alone, as we've indicated in the past is expected to generate more than $120 million in the incremental segment income over the 10-year contract duration, which will allow us to provide end customers with higher interest income over time, bolstering the bulk of the benefit between growth initiatives and enhancing by-online earnings. The sweet portion of this is large, even if rates still continues to go up.

On balance, we've taken a small setback in the immediate wake of conversion for the opportunities to take three steps forward. The overall benefits we expect to see from this conversion in terms of benefits to advisors, client, and the company are hard to overstate. And importantly, the majority of our largely advisor offices are fully tasked to conversion and are 100% focused on growth. This gives us strong conviction around bringing the rest of the advisors to the same spot.

Also in this line of said category advisor productivity. Our introduction of predictive models to access advisors and bring in those with the highest potential continues to bear fruit. The advisors brought on using this process continue to reach early milestones in a fraction of our historical average, at 120 days versus the prior 800. We had almost 80 new advisors joined in the fourth quarter utilizing this assessment.

New tools and training including consultative sales simulations using virtual reality have empowered it, they're showing great promise and we expect we'll have a positive impact in 2019. These been part of an overall productivity effort to include a realignment of service capabilities, to provide the right service to advisors in the right way, which is now in pilot. You'll recall last year, we actively proved the advisor base by setting engagement requirements, which led to the determination of our affiliation with hundreds of advisors. This is creating more capacity for our team to focus on driving productivity with our engaged advisors and continuing to enhance our experience and support for the most productive advisors and teams.

Overall, our average production per advisor was up 40% in Q4, relative to a year ago and we can -- and we believe that we're just in the early stages in this regard. As we continue to bring in larger and established advisors and enable stronger growth for our current advisors, advisors are moving up the payout grade with our top teams outperforming and growing relatively faster. We applaud their growth and specifically the way they are growing to embracing the advisory model. While we're fully happy with the acceleration of the growth at the high end, the relative inbounds of the growth has led the tariff rates increasing over the past few quarters.

We maintain a strong relative payout advantage relative to the industry because of our balance of advisors at each stage of the advisory lifecycle. Yet, we're focused on a number of steps to extend and accelerate growth among the high potential middle group of advisors, which went effective, should serve to moderate overall payout rates. Finally, in the ramping category, most notably, we recently launched our Tax-Smart innovation incubator with the first invasion already in beta testing. It's a new proprietary tax reinvesting software platform to help advisors systematically capture tax outputs for clients.

This is key as investors unnecessarily give up 1 to 2 percentage points of performance each year to taxes. The beta was oversubscribed within 24 hours of launch and is now in testing with about 150 advisors. For the very early stages here, with the reaction and the results thus far are quite encouraging and the feedback we're receiving is helping us to make the product even more beneficial. Our feeling is we can create a far more useful set of capabilities that aren't currently available in the market place, giving our advisors an incredible edge in driving value for clients.

So big picture in wealth management, while we demonstrated excellent results in 2018, perhaps even more important as a foundational elements we put in place to drive future growth. We're bringing in great new advisors talent, arming them with a powerful set of technology and productivity tools that will represent its step function increase of capability, growing at new training and support as well as developing the next generation of tax-marked tools to drive even better client value. Debt flows have been strong as shift to advisor continues and sweep revenue run rate has never been higher for HD Vest. These are the major drivers of value and they are our focus.

For the company as a whole, as we look back at the full-year 2018, I'd have to say that I'm incredibly proud of what the team has accomplished including growing total revenue by 10%, growing adjusted EBITDA by almost double that rate at 19%, growing non-GAAP earnings by an even stronger 30% and approaching $2 per share, generating nearly $100 million in free cash flow, further strengthening the balance sheet by paying down $80 million in debt and reducing our net leverage ratio from 1.5 times from 2.8 times, improving HD Vest revenue by 7%, achieving record net flows for HD Vest including almost $1 billion into advisory at $957 million, transitioning to a new clearing platform and technologies, which will benefit advisors and clients or enabling us to capture more than $120 million in additional benefit over the 10-year term, exceeding our 21st consecutive year of revenue growth to TaxAct, growing 16% and meeting our goal of stabilizing monetized units. And last, but not least, bringing greater new talent into the organization, up to including the management team and Board of Directors. In 2018, we advanced our strategic goals of accelerating growth, building tax-marked leadership, creating one Blucora and delivering results. We strengthened our platform, we invested for future growth, we generated outstanding financial results and lay the groundwork to capture the significant opportunities we see ahead.

In short, our strategies are working and are on track. As I approached my third anniversary with Blucora, I've never been more excited about our prospects. With that, let me turn it over to Davinder.

Davinder Athwal -- Chief Financial Officer

Thanks, John. Good morning, everyone. I'll jump right in and cover Q4 results and provide some additional color on our current revenue and set net margin excitations for the upcoming tax season. As John mentioned, our overall results are generally in line or better than our target ranges, revenue is up 3% year over year to $101.3 million at about the midpoint of our guidance range.

Adjusted EBITDA loss improved to $757,000 driven by an increase in revenue as well as lower OPEX at TaxAct. We are above the high end of the guidance range. Non-GAAP net loss per share of $0.16 was just at or hardly above the high-end of our guidance range, although down relative to the year-ago period to a $3 million adjustment in the year-ago period associated with recording tax benefits for equity awards. And finally, GAAP net loss per share was $0.38 also above guidance, but down relative to the year-ago period, which included $32 million benefit from tax reform.

Moving on to the balance sheet. We've cash and cash equivalents of $84.5 million and net debt over $180.5 million, we ended the year with enough leverage ratio of 1.5x down from 2.8x at the end of 2017. Our capital allocation strategy continues to be focused on organic investments and debt pay down. So that's a nice strategic opportunity that may present itself but expect further delevering in 2019.

As a reminder, the noncontrolling interest in HD Vest becomes redeemable this quarter so we expect with associated cash outlay of approximately $25 million in Q1 with no P&L impact. I'd now like to review segment performance, beginning with wealth management. HD Vest fourth-quarter revenue was $97.2 million, up 4% when compared to the prior year and above the midpoint of our guidance range. Q4 revenue was highlighted by fee-based advisory revenue, which is up 13% year on year, driven by strong net flows and market growth in the first three quarters of the year, reflecting some of the earliest significant benefit to the growing transitions mutual fund rev-share revenues was up 19% and sweep revenues up 96%.

Also effective of the conversion, but in the other direction, our transactional commission revenue that subdued relative to what it could have been that advisors and our home office teams acclimated to new procedures, tools, and technologies causing cycle times to increase. As John mentioned, we brought in additional resources that help smooth out the buyer experience and is making good progress. Segment income in this unit for the quarter was down about 1% year over year and short of our targeted range due to items John mentioned. These included a deal of variables of about $450,000, that was recorded during the quarter, clearing-related impact to lower transaction volumes and increase overall support personnel, which together were about $350,000 and a higher advisor payout rate which is about $700,000 impact driven primarily by market performance in product mix as well as advisory mix with higher payout advisory growing faster on a relative basis.

In short, we are seeing the long-term benefits from the current conversion begin to pull through particularly in our asset base revenue line while they are offset in the short-term by incremental cost and some lost productivity. We expect to increase stability related to the conversion over coming months and look to be fully stabilized by the end of the first half, at which time, incremental expenses are expected to roll off. I would note the fact that we're able to involve additional unexpected cost and still exceed our guidance for total adjusted EBITDA is a good example of our one operating company mentality and to run the business both to optimize for adjusted EBITDA at the consolidated level as well as to meet our financial commitments. In this case, we were able to more than offset the increased cost on the HD Vest side and save those opportunities elsewhere.

Continuing on, net new client asset for the quarter were $109 million, and net flows into advisory were $347 million. We were very pleased with our advisory net flows, as this is an area of focus for us, as we continue to convert existing brokerage assets to fee-based advisory assets where appropriate for clients, while also providing new-to-firm, fee-based assets. Despite these strong flows, the significant market decline in Q4 was also an advisory asset that's coming just like the higher year over year at $12.6 million and total client assets being down about 4% on a year-over-year basis to about $32.2 million. However, the continued growth in strength and advisory, drove advisory as a percentage of total up about 130 basis points to 29.7%.

For the full year, HD Vest revenue came in at $373.2 million, up 7% over the prior year and segment income was $53.1 million, an increase of 4% over 2017. Summing up the year, market conditions were favorable for most of the year as [Inaudible] grew a total asset and advisory asset on top of the record growth we achieved which benefited e-base and credit revenue. We typically see increased flows in time of S&P 500 growth, we also saw full increases in the Fed Fund rate in 2018, which benefited us on the full quarter following the credit conversion. And will be at even bigger benefit looking forward.

So the big first for 2018 is a significant strategy made to position the company for the future of all the items that John mentioned, including record flows, recruiting, conversion, and value productivity and a very promising tax mode innovation initiative. Looking next to our tax prep segment. Tax prep revenue for the fourth quarter was $4.1 million, up 2% compared to the prior year. Segment loss was $8.7 million and improvement of 17% versus prior year as a prior-year quarter included incremental spend related and marketing as well as our crowd conversion.

For the full year, tax prep revenue came in at $187.3 million, an increase of 16% over the prior year, segment income was $87.2 million, an increase of 20% of the prior year resulting in segment margin on 47%, which represents a 130 basis point improvement for 2017. Turning next to the Q1 '19 outlook. For TaxAct, we expect revenue of $124.5 million to $126.5 million, which is approximately 64% of first half 2019 revenue and segment income of $66 million to $68 million. For HD Vest, the significant market decline we saw in December did not have a material impact on the fourth quarter, but which will show up in first quarter results, again, primarily in advisory as fee for Q1 are based on Q4 ending assets as well as trader of the rev share.

For Q1 '19, we expect HD Vest revenue between $89 million and $92 million and segment income of $10.5 million to $12 million. In addition, to more conservative view on transactional volumes, this outlook incorporated a few incremental items including: first, approximately $1 million of advisory bonuses to recognize our top advisors, based on production in advisory assets. This amount will declined to $700,000 in Q2, cut to $400,000 in Q3 and go away thereafter; second, $400,000, the short-term contract support cost as we maintain elevated support level for advisors, we would expect this amount to drop to $100,000 in Q2 and then go away; third, $300,000 for an additional and one-time legal reserve. On a consolidated basis, we expect first quarter revenue between $213.5 million and $218.5 million.

Adjusted EBITDA between $68.5 million and $72.5 million and non-GAAP net income of $60 million to $63.5 million or $1.19 to $1.26 per diluted share. And GAAP net income attributable to Blucora of $48 million to $50.5 million or $0.95 to $1 per diluted share. This includes unallocated corporate expense of $7.5 million to $8 million. Consistent with our past practice, we expect to provide full-year outlook during our first quarter call upon the completion of the tax season.

However, there are couple of items that I would mention now that may be helpful if you look ahead or for modeling purposes. We continue to expect a new clearing arrangement to generate more than $120 million in incremental segment income over the 10-year contract period. For 2019, assuming no additional increases in the Fed Funds rate, we now expect the incremental benefit of approximately $12 million, which represents the high end of our previous target of $10 million to $12 million. This $12 million benefit is compared to our previous clearing firm run rate, compared to 2018, which included a $1 million clearing benefit, this will represent $11 million increment.

Should rates change for modeling purposes, it would be fair to assume a $2.5 million annual fragment income impact probably 25 basis point change in the Fed Funds rate. As we previewed last quarter, we expect to leverage this incremental clearing benefit to fleck for investment in the [Inaudible] in 2019 and capitalize on the significant organic growth opportunities we see. Particularly, the Tax-Smart innovation initiatives, as John referred. For the full year, we're targeting an investment of $4 million to $5 million which could show up in our unallocated corporate expense line.

In 2018, we've utilized approximately $67 million over tax NOLs. We will go for pre-tax balance of $454 million. Now finally on debt paydown, just a reminder that given the seasonality of the tax business and the strong cash generation that can arise, we tend to pay down in the first half of each year. With that, I'll now turn the call over to Brian for any questions.

John Clendening -- Chief Executive Officer

Actually, before we do that, in my taxes season discussion reference to February 1, IRS data. What -- But I wanted to make sure I also have noted that February 8 data that came out yesterday showed a similar story, but to a lesser degree with IRS filings now down 7%, with DDIY down 3%. But let's now go ahead and open it up to questions. 

Questions and Answers:


[Operator instructions] And our first question will come from the line of Dan Kurnos with The Benchmark Company. Your line is now open.

Dan Kurnos -- The Benchmark Company -- Analyst

Great. Thanks. Good morning. John, not a lot of room for questions, very thorough on the explanation here.

But maybe if we can just talk -- take tax first, just on your thoughts on the sort of the competitive landscape and sort of your promotional activity. Obviously, we've seen a lot of commercials about going with an actual CPA that's been, sort of, the theme, I guess, more recently, especially during some of the larger football games and how that is sort of -- you guys are judging sort of that move, which I think started occurring last year versus what kind of you guys are doing. And on the promotional side, I believe you guys advertised a little bit more on national TV and maybe also even during some of the larger televised events, but just how you are being more promotional, whether it's the increased promo codes, pricing, up front in the season with the anticipation of making it back in the back half or just how you guys are attacking the market relative to your peers?

John Clendening -- Chief Executive Officer

Dan, thank you, and thanks for the question. I'll unpack it in sequence there. And let me start with overseeing, sort of, big picture. As noted in the prepared remarks, we're definitely seeing upticks in overall spending and noted as well the shift for more toward live.

Our belief is that sort of -- I'm thinking about, sort of, TurboTax live there, of course. But our view is that the aim there is to take more and more people out of the storefront, making those folks who are there in the first place because they get some anxiety, perhaps more than complexity, anxiety around their tax situation, and we believe in general, the more successful the volumetric leader is in winning those customers over from storefronts to better should be over time for DDIY. They are advertising very heavily, and we expect to continue to do so. Now as it relates to our position in the marketplace, a couple of things.

So we have seen some mix. I signaled on the last call that we had some really sharp improvements in analytics on how to spend our marketing dollars. And so we have made those shifts. We felt really good about the campaigns that we developed this year.

We're seeing a positive response on those, and part of that is due to the fact that we are broadcasting on television. Of course, our spend levels are far smaller than others, but we think the messaging itself has cut through nicely. There's also been an important social component or we've had over 8 million views of our video campaign on social. We're nowhere near the end of the -- even the mid part of the season here, of course, but we feel good about how we're stacking up from a marketing point of view.

Now as it relates to promotions, you may have seen some of our marketing that we advertised this concept of we pay you to file your taxes. So it's secret that there's economic value on a -- in a stored value card. That's how it works for us. We've seen a lot of interest on social and otherwise, around an offer -- an offering like that.

So that's how we're seeing things back up, that's how we're competing so far. We've got ongoing tests around pricing and promotions, and we vary that based on new versus returning versus folks that have lapsed and -- we had a lot more this season to go and prosecute, and we're hitting No. 2 or so here, but like I'm liking what we're seeing with regard to marketing.

Dan Kurnos -- The Benchmark Company -- Analyst

Do you have a sense John, where you're finished kind of last year in terms of brand awareness and now, obviously, still early in the season. Any metrics you can share around either repeat or things that can give us sort of an update on brand awareness, which has obviously been the one issue, I think, that's play TaxAct in the past?

John Clendening -- Chief Executive Officer

Yes. We don't show those numbers and clearly with spend levels lower than others and being in a category that is, generally speaking, a once a year event. We're going to be that player that whose brand recognition fits with our market share, meaning we'll be third in brand recognition. But we think that the differentiation that we've built into the market this year, it's a good thing that people talk in one message, and we've got a guy match with the opposed message that's more around value is going to be good in the context that competing inside the DDIY category, while others try to bring people into DDIY.

And it's something that we focus on continuously. More progress coming.

Dan Kurnos -- The Benchmark Company -- Analyst

OK, last -- then just last on wealth management. Just so I can understand, John, it sounds like integration, it was -- I think, we all sort of take for granted the size of the integration and shift you guys did to the new clearing platform. It sounds like even though by your standards, maybe a little bit of noise, I guess, around uptake and sort of adopting the new platform. Can you just give us a sense of when -- are you still able to still fully step on the gas here? Are you -- how long does this kind of noise persist, and ultimately, when do you feel like you're able to get more aggressive with some of the other initiatives that I think you want to roll out now that you've got the platform underlying?

John Clendening -- Chief Executive Officer

Dan, thank you for that question as well. So the way to think about this one is that it's -- I'm going to make two comments, first is, as noted, we actually took on three conversions in one. We actually debated when we ought to have more of a rolling thunder approach with the conversion to the -- on the National Financial side. It was timed and then that was then Envestnet and eMoney would come after tax season.

And we just felt like that would be too much of an extended period of disruption. So we choose to do all three at once, and as we've also shared other -- there's been a lot more cleanup work than we expected with regard to getting advisors comfortable especially with those later two elements. That said, by the end of Q4, we were back within our stated processing level, just a few -- very few exceptions. Now as it relates to growth, the -- it's kind of like a tale of two cities to here to extent that larger advisors, the advisors that have been much more focused on growing advisory, focus had have been -- frankly our biggest producers.

They embraced all the change, and we're actively working with those advisors to help them grow their practices, and there's a number of initiatives that are supporting them in that regard. And instead, then some of the smaller advisors who make their advise for whom they're going to spend a couple of hours a week on wealth management for whom getting off the learning curve has just been more difficult. They don't have a frequency of usage that the large advisor office with -- like a multi-person firm would have. And it's really that advisor we've been spending more and more of our time with.

So we're not stalled out with regard to focusing growth initiatives, the pilot around advisor productivity. It's bolstering ahead. We're realigning some of our teams to support that new segmented approach to our advisors. We continue to move our advisors and focus on the right conversation with clients.

We're not stalled, it's more like holding tank until we own it. It's more like cycling through advisors segment-by-segment and even advisor-by-advisor to get them up to speed, while the larger advisors are already partly moving up. That's why we saw the -- how nice this performance in advisory, by the way, in Q4, thought that maybe a bit of a challenge, but the reason was we believe that some of the larger advisors powered through the new version and kept on moving with regard to greater penetration advisory.

Dan Kurnos -- The Benchmark Company -- Analyst

Got it. Thanks for all the color, John. Appreciate it.

John Clendening -- Chief Executive Officer

Thanks, Dan.


Thank you. And our next question will come from the line of Will Cuddy with JP Morgan. Your line is now open.

Will Cuddy -- JP Morgan -- Analyst

Good morning. So John, I think, you discussed in the prepared remarks some of the monetized units outlook for this year. Could you indicate the trend that monetize unit for tax season to date? I may have missed it.

John Clendening -- Chief Executive Officer

So -- well, thanks for the question, good morning, appreciate that. The headline here is a sharply favorable shift in mix toward monetized units. We've explained a little bit of that in the prepared remarks, but as you know and folks on the call know, we've been in a multiyear effort to shift our focus toward monetized units 0.1%, 0.2%. Monetized filers tend to be much more of a second peak sort of phenomena.

And so in our instance, we believe that explains our slow start, although we're covering ground -- covering up ground, making up ground rapidly even over the last few days we've seen some nice progress there. But we have a goal of growing paid units on to follow up on our success of last year. We are up relative to this point last year, but I point out in fairness that its not as meaningful comparison since we did not have the basic's SKU last season until March. So it's shaping up in terms of monetized units, largely the way we would have expected to, our focus is to, again, to grow monetized units, we're making every opportunity to make sure we do that this season.

And again, as noted, a sharp shift in mix toward monetized unit. So byproduct of our strategy.

Will Cuddy -- JP Morgan -- Analyst

Great. So turning to wealth management. So there's been a lot of noise around tax season this year. As we think about that, has there been an uptick in conversations from tax professionals that are looking to get into the wealth management business? And relatedly it seems like what the conversion it may possibly have changed some of that advisor on board as we look out over the next six, nine months or so.

I mean is that fair in like how should we be thinking about Dallas for growth over the course of next year for advisor onboarding?

John Clendening -- Chief Executive Officer

So let me cover the second point first around onboarding. There's really -- there's no negative with regard to the new advisor coming in. In fact, it's all positive and the reason for that is we're starting out of the gate with this terrific package of National Financial plus Envestnet plus eMoney. So they're working with sort of a best in show array of capabilities and so for that person coming in at tax only now becoming tax and wealthier in far better spot.

What about the established advisor. Certainly, if they are on another clearing firm they got to make a change, but that was true before and the plus here is that they are now also going to a far better, let's call it a stack of capabilities and was true previously. So much so that we landed some advisors, it will begin to convert even late last year on the basis of now having built that sort of best in show lineup of those three capabilities. So it's not going to stop recruiting, in fact, it's a bit of a spurter recruiting and I feel like we're going to get people off to an even faster start with the quality of what they have to work with versus that was true, what was true previously.

Tax, the tax reform and what does that do for tax professionals and thinking about coming into widening their profession to include wealth management. We think it is one more spur for those folks. First, big picture, what's happening in that business sort of as you think about tax only professionals, it's a couple percent growth, sort of year over year, it's not rapidly growing. And on top of that, it's increasingly less and less differentiating.

So it's certainly true that the wise tax only professional is looking for ways to add value to their business. They're looking for ways to do more for clients and extend from the more commoditized simple preparation of taxes. And that's where we come in, right? So we come in exactly at that point. It's why we think we've gotten more interest in some of the events we've gone to.

It's why we've gotten good uptick from great advisors because they see that it's kind of tough slogging to grow your practice once you've sort of filled yourself, if you will, to the right level of capacity on tax filing. So tax reform, it's one more reason for that advisor to think about how can I be strategic? How can I take advantage of change? And if that manifestation on the investment side that captures fascination of so much of these folks.

Will Cuddy -- JP Morgan -- Analyst

Great. Thank you for putting on the detail on that. Appreciate it.

John Clendening -- Chief Executive Officer

Thanks, Will.


[Operator instructions] And our next question will comes from the line of Christopher Shutler with William Blair. Your line is now open.

Andrew Nicholas -- William Blair -- Analyst

Hi, guys. Good morning. This is actually Andrew Nicholas, on for Chris. I guess, first, can you talk about customer utilization at the refund market place so far this year.

Obviously, it's early in the season, but any sense of what the average bonus is that you've seen customers get? And maybe even a sense of the economics of the program on average, recognizing at various little bit by the type of gift card and the merchant?

John Clendening -- Chief Executive Officer

So Andrew, good morning, thank you, the question. John, here, I'll take that one. It is early, but we're seeing some nice uptick in the marketplace. we're experimenting with how we present it.

It's a -- in a way -- I mean the value proposition is clear, right? Hundreds of dollars up to $599, we're experimenting it with how to best convey that out to the consumer in terms of the web experience itself, but that said, there is several million dollars that have already been loaded onto these cards and for the consumer that is really value conscious, it's quite something to leave net positive, paying us a little money and leaving with a lot value on a card. And as it relates then to kind of the economics of it, essentially what happens here right is their's economic sense for our value card for obvious reasons. We pass nearly all of that on to the consumer as a way to attract people into our brand. And so it's not meant to be a moneymaker for us per se, it's much more meant to be an acquisition tool and one that we're going to continue to experiment with in terms of its presentation.

Andrew Nicholas -- William Blair -- Analyst

Got it. And then turning to wealth management. I know you mentioned stronger relative growth among higher producing advisors, driving up the payout rate in the quarter, just curious, one, if there's also any seasonality in that number in the fourth quarter? And then two, if there's a way for us to think about that payout rate in 2019 or even longer term?

Davinder Athwal -- Chief Financial Officer

Andrew, this is Davinder, I can think that. To take the first part of that question, there really isn't any seasonality that I would model in, it's typically pretty constant throughout the year. And in terms of thinking about going forward, in my remarks, I mentioned that we did have, we do have a bonus that we expect to pay in Q1 and then a little bit in Q2 and Q3, which I would say, is not going to be kind of a run rate type of a component on payouts. So I would exclude that and, I think, if you do the math, you'll find that that will probably take out about 1% or so from the calculated payout rate.

So I'd kind of use that 77.5-ish for purpose of modeling.

Andrew Nicholas -- William Blair -- Analyst

OK. And then one last modeling item, if you don't mind, Davinder. Can you tell us what the tax rate is that you assumed in the Q1 guide? And any outlook for the full year?

Davinder Athwal -- Chief Financial Officer

Yes. As a reminder, Andrew, so we're still in a net NOL situation. So we don't expect to be a federal taxpayer this year. We do pay cash taxes or state taxes and that typically been around 2% to 3%, which is what we're using for Q1 and for -- really for the full year.

Andrew Nicholas -- William Blair -- Analyst

Understood. All right. Thanks a lot.


And I'm showing no further questions. I'd like to hand the call back over to the management team for any closing comments or remarks.

John Clendening -- Chief Executive Officer

Thank you all for joining us today. In closing, I'd like to also thank our employees, advisors, and customers that are the heart of our success, 2018 was a great year for Blucora. And we're looking forward to keeping you updated on our progress. Speak with you all next quarter.

Take care.


[Operator signoff]

Duration: 49 minutes

Call Participants:

Bill Michalek -- Vice President, Investor Relations

John Clendening -- Chief Executive Officer

Davinder Athwal -- Chief Financial Officer

Dan Kurnos -- The Benchmark Company -- Analyst

Will Cuddy -- JP Morgan -- Analyst

Andrew Nicholas -- William Blair -- Analyst

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