Blucora (BCOR) Q2 2019 Earnings Call Transcript

Blucora (AVTA)
Q2 2019 Earnings Call
Aug 07, 2019, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the second-quarter 2019 Blucora earnings conference call. [Operator instructions] I would now like to turn the conference over to Mr. Bill Michalek, vice president of investor relations.

Bill Michalek -- Vice President of Investor Relations

Thank you, and welcome everyone to Blucora's second-quarter 2019 earnings conference call. By now, you should have had the opportunity to review a copy of our earnings release and supplemental information. If you've not yet reviewed these documents, they're available on the Investor Relations section of 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.

We will discuss both GAAP and non-GAAP financial measures today, and the earnings release and supplemental information available on blucora.com include 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. I'm pleased to report that Blucora was able to build on our strong start to the year and post solid second-quarter results, exceeding the high end of our target ranges on most metrics. We closed on our acquisition of 1st Global, which is an important milestone for us. And even after funding the acquisition, we ended the quarter at 2.1 times net leverage ratio due to our strong cash generation.

Overall, we continue to execute the plan and are very pleased with the results. Let's get into some of the detail, starting first with wealth management. We had a couple pieces of big news in this segment during the quarter, including closing on our acquisition of 1st Global on May 6th. To briefly review the rationale for the acquisition, first, it adds significant scale to our wealth management business, which drives substantial revenue and cost synergies.

A meaningful amount of the revenue synergies is external and contracted, and the bulk of the remaining cost synergies are fully under our control. Second, it is complementary to HD Vest and enhances our business with a strong position in large accounting firms, a large proportion of advisory assets and strong capabilities in key areas such as onboarding, advisor development and in-house portfolio management. Third, we expect the transaction will be financially accretive to EPS and other key performance metrics, such as advisor productivity and return on client assets. And finally, it expands our established tax-optimized investing footprint by creating by far the largest and most capable tax-focused wealth manager, positioned to provide better service and capabilities for our advisors and ultimately better outcomes for our clients.

The integration of the two companies is going well and tracking to plan, and so I'm pleased to affirm our previously shared financial benefit expectations. We continue to be impressed with the 1st Global advisor base and their passion for their clients. They share our fundamental belief that true wealth management must consider all aspects of a client's financial life. I've also been impressed with the quality of the broad employee base, which includes highly talented individuals that are making an impact, even beyond wealth management.

The other big news in wealth management is, in the second quarter, we found the right person, Enrique Vasquez, to lead the combined business. I can't say how excited I am to have Enrique on board. He has incredible experience including with GE, Societe Generale and 12 years as CEO of Cetera Financial Specialists. It's interesting that in one quarter we combined the No.

1 and No. 2 tax-focused wealth management firms and brought in the former CEO of the No. 3 firm. Enrique is a top-notch talent and person and an invaluable addition to our overall leadership team.

I'll start with consolidated wealth management results for the quarter, then Davinder can get into more of the detail. Consolidated wealth management consists of HD Vest plus 1st Global from the May 6 closing date through quarter end. On that basis, wealth management revenue was $127.8 million and segment income was $17 million, both of which were above the high end of our target ranges. On a consolidated basis, net flows into total client assets were about $300 million, and we ended the quarter with a combined $67.6 billion in total client assets.

Net inflows into advisory assets in the second quarter were about $310 million, and we ended the quarter with $26 billion in advisory assets. Advisory assets as a proportion of total client assets ended the quarter at 38.9%. A couple updates I'll add here for wealth management. First, recruiting was strong in Q2 across both businesses.

This includes about 30 new individual advisors, all of which are tax pros. We also had a handful of established advisor transfers, two of which were larger in size, with a combined $100 million in client assets that will soon begin to move over. One of these advisors joins us from an RIA. While RIA transfers are not an everyday occurrence, our strong compliance support and product offerings to enable advisors to scale and grow is compelling.

In addition to individual advisors, we had six new accounting firms join during the quarter. Two joined the platform as established practices and advisors with about $30 million in total client assets that will be moved over in Q3 and Q4. Four more joined as new practices with an estimated $700 million in total client asset prospecting opportunity. And second, in Tax-Smart Innovation, we have told you about the Tax-Smart investing software platform to help advisors systematically capture tax alpha for clients that we've had in beta testing.

We've now launched our first commercial version in June with great response. Demand was very strong, and we are making it available now to approximately 250 HD Vest advisors with a broader rollout to follow. It's a sophisticated tool and requires some training. So the process now is getting this group trained and up and running.

This training will be our focus throughout the fall, and we expect to see meaningful usage, which should allow us to track how advisors are using it, how it impacts their growth metrics and overall business. We're also working on a couple of additional modules to add to the tax-loss harvesting module that we hope to have in beta testing by the end of the year. So overall in wealth management, strong progress in our results and positioning for the future. Turning to tax preparation, TaxAct completed a very strong tax season in first half of the year with first-half revenue up 12.5% year over year versus our upwardly revised guidance of approximately 13% and well above our original expectation going into tax season.

First-half segment margin came in at about 60%, which was above our previous expectation of 58%, largely due to lower-than-expected marketing spend and timing of tax year 2019 initiative spending. We were pleased with our overall progress this season which included a number of highlights, including increasing market share in the professional market with TaxAct Pro; maintaining a stable monetized filer base in consumer, even while taking pricing up more than 10%; improving the customer experience with an enhanced mobile experience; launching Ten Minute taxes, a streamlined process to guide simple filers to complete in record time; introducing Refund Marketplace, which while underutilized broadly, allowed our filers to place refund dollars on gift cards from national retailers on gift cards and receive bonus money up to $599; engaging with another almost two million filers in our BluPrint experience, which analyzes tax returns to uncover real savings opportunities for our customers. We believe we're the only online tax software company that offers that level of insight and guidance into the financial health of our customers, 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.

And this year we had new partners to connect them to should they want to take advantage of particular opportunities. And lastly and perhaps more importantly, we made significant improvements in our talent and capabilities across all aspects of the TaxAct business. Now with tax year 2018 behind us, we are working hard to refine our plans to build on the success of this year and further improve our competitive positioning for next season. We'll share more detail on that later in the year, but a few areas of focus are around: significantly enhancing the user experience, making it much easier and more enjoyable, and removing friction points for filers at every level of complexity; ensuring our SKU lineup is competitive and attractive; providing more insight and value to our consumers from start to e-file completion; bringing more of the value and insights of BluPrint to more of our customers, including within the tax interview to give them more value and more ways to improve their financial lives; sharpening our marketing message in order to more powerfully appeal to our targeted core attitudinal segment, while concurrently appealing to filers across the complexity spectrum and at all price points, including free; investing in modernizing the underlying supporting technology in order to support enhancements in the customer experience.

So overall in tax preparation, we delivered very strong financial results and continued to make incremental progress on repositioning the business for the future. I mentioned this last quarter, but I believe the change in our product experience year over year will likely be the most significant in the company's history, and I'm looking forward to sharing more later. In closing, we had a strong quarter with good execution across both businesses. We met or exceeded our targets on all metrics.

Our wealth management business saw record levels of advisory assets and total client assets, completed the acquisition of 1st Global and onboarded a great new leader. Our tax preparation business delivered a very strong tax season and first half and is making great progress in positioning for next season and beyond. Overall, we continue to improve our business positioning and capabilities, and I remain very optimistic about the opportunities we have ahead. With that, I'll turn the call over to Davinder.

Davinder Athwal -- Chief Financial Officer

Thanks, John, and good morning, everyone. I'd like to provide some additional detail on second-quarter performance, a balance sheet update and an updated outlook for the remainder of the year. I'll begin with consolidated results for the second quarter, which includes 1st Global from May 6 closing date through quarter end. Total revenue was $193.7 million, which was above the high end of our guidance range.

Adjusted EBITDA was $52.1 million, also above the high end of our target range. Non-GAAP net income came in at $41.4 million, or $0.83 per share, and GAAP net income came in at $31 million, or $0.62 per share. Since we closed on the acquisition of 1st Global during the quarter, we gave guidance for the historical businesses and 1st Global separately. So for comparison purposes and excluding 1st Global, Blucora revenue would have been $164.8 million at the midpoint of our target range and up 4% year over year.

Adjusted EBITDA would have been $49.9 million, above the high end of our target range. On a year-over-year basis, this would be down 5% due to timing of tax season revenue being more weighted to Q1 this year versus last. And non-GAAP net income would have been $39.4 million, or $0.79 per diluted share, and GAAP net income would have been $29.6 million, or $0.59 per diluted share, again, better than our target ranges and down year over year due to the timing of tax season results versus last year. Looking at segment performance, John reviewed the consolidated wealth management numbers.

I'll provide a bit more of the breakdown. HD Vest revenue for the quarter was $98.8 million, up 7% year over year and above the high end of our guidance range. The year-over-year growth was primarily due to a combination of fee-based advisory revenue, which was up 9% on higher advisory asset balances, as well as higher sweep cash, which more than doubled and reflects the change in clearing economics and interest rates year over year. Commission revenue was down modestly, about 2% year over year, but continues to normalize.

And transaction and fee revenue was up 6% year over year, primarily driven by advisor-related ancillary revenue. HD Vest segment income grew 14% year over year to $14.8 million, also above the high end of our target range. The higher year-over-year growth rate can be attributed largely to the absence of clearing conversion-related costs relative to the year-ago quarter, as well as some expense control. This was partially offset by the previously disclosed advisor bonus of about $700,000.

And as a reminder, we expect to see another $400,000 in Q3 and then that goes away. 1st Global, for the period of May 6 acquisition closing date through the end of the quarter, added an incremental $29 million in revenue and $2.2 million in segment income, which as John mentioned were also above our target ranges, helped by a bit better than expected transaction revenue and net flows into advisory. Moving on to assets next, at HD Vest, advisory assets were up 12% year over year to $14.5 billion. Total client assets increased 5% year over year and crossed the $47 billion mark.

The levels for both advisory assets and total client assets represent new records for the company. At 1st Global, advisory assets were up 5% year over year to $11.7 billion, and total client assets were flat year over year at $20 billion. As it relates to the acquisition, as John mentioned, the integration is going well and we remain on track to hit our synergy targets. Additionally, advisor and advisor asset retention has been very strong.

Moving on to tax preparation, TaxAct finished up a strong first half with revenue up about 12.5%, which was slightly shy of our most recent guidance on a slightly robust refund transfer product funding, was well above our original target. Segment margin came in at 60% versus our target of 58% on lower than expected marketing spend and timing of initiative spending. For the second quarter, revenue was $65.9 million, flat versus prior year, and segment income was $41.4 million, down 6% year over year, and segment margins were higher than our upwardly revised target. As John mentioned, we are working hard to build on our successes and learnings from this tax season and create a significantly improved product and competitive position going into next tax season, while laying the groundwork for long-term growth beyond.

As part of this, we plan to accelerate our investment in technology, in particular the timing of our code refactoring work to complete over the next two years. Importantly, this refactoring work is at a stage where the focus is on improving the client experience in order to drive increases in conversion and retention. We look forward to sharing more of our strategy and the 2020 expectations over the next couple of calls. Finishing up on the second-quarter performance, unallocated corporate operating expenses were $6.2 million, lighter than we expected due to the timing of certain items between quarters.

Moving on to liquidity, we ended the quarter with cash and cash equivalents of $110 million, and our net debt was $280 million, which reflect another strong cash flow quarter, the payout and termination of the HD Vest minority interest and the closing of the 1st Global acquisition which was funded with $125 million of addition to our Term B loan and $55 million in cash. This brings our net leverage ratio to a comfortable 2.1 times as of the end of the quarter. Finally, as it relates to the acquisition closing and integration, in the second quarter we recorded $4.7 million in transaction costs and another $4.5 million in integration costs. These costs are broken out on a separate line in our supplemental information so you can track them, and they are added back for purposes of reporting adjusted EBITDA.

As a reminder, as we indicated at closing, we expect a total of $28 million in integration expense with roughly $10 million in 2019 and the balance in 2020. Our goal is to accelerate as much of the integration activities in 2019 as possible to maximize the long-term benefits. If we're successful in doing that, more of the cost will pull into 2019 and the total synergies would likewise increase. With that, let's turn to our outlook.

For the third quarter, we expect TaxAct revenue between $3.5 million to $4 million and segment loss of $13.5 million to $14 million. For our wealth management business, including 1st Global, we expect third-quarter revenue of $139 million to $145.5 million and segment income of $18.5 million to $21.5 million. On a consolidated basis for the third quarter, again including 1st Global, we expect total Blucora revenue between $142.5 million to $149.5 million; adjusted EBITDA of between a $4 million loss and breakeven; a non-GAAP net loss of $10 million to $14.5 million, or $0.20 to $0.29 per share; and a GAAP net loss attributable to Blucora of $30.5 million to $35.5 million, or $0.62 to $0.72 per share. This outlook includes third-quarter unallocated operating expenses of $8 million to $8.5 million.

For the full year we expect: TaxAct revenue of between $210.0 million to $211.0 million and segment income of $93.0 million to $94.5 million, which includes the accelerated technology investment referenced earlier and previously. For our wealth management business, we expect full-year revenue, which includes 1st Global for the period of May 6 through year end, of $500.0 million to $513.0 million and segment income of $67.0 million to $73.5 million. This translates into a consolidated full-year outlook, again including 1st Global for the partial year, of revenue of between $710.0 million to $724.0 million; adjusted EBITDA of $130.5 million to $139.5 million; non-GAAP net income of $92.5 million to $102.5 million, or $1.84 to $2.04 per diluted share; and GAAP net income attributable to Blucora of $27.0 million to $37.5 million, or $0.54 to $0.75 per diluted share, with $28.5 to $29.5 in corporate unallocated expense. I'd like to call out that while we are raising our guidance for the full year, we have also incorporated the July 31 rate cut and also assumed an October rate cut into our targets, which would affect cash sweep in wealth management.

Our outlook also includes the following additional assumptions: a broad range for transactional revenue due to its variability; market volatility, including impact to net flows and cash sweep balances; an effective tax rate of minus 3% to minus 7% for GAAP net income attributable to Blucora; and our guidance for GAAP net income or loss attributable to Blucora excludes any impact to tax expense for discrete items and variable stock-based compensation granted to non-employee advisors. This concludes our prepared remarks. We will now turn the call over to the operator for Q&A. Operator?

Questions & Answers:

Operator

[Operator instructions] Our first question or comment comes from the line of Will Cuddy from JP Morgan. Your line is open.

Will Cuddy -- J.P. Morgan -- Analyst

Good morning. Thank you for taking our questions. So thanks for all that. Davinder, on the market guidance, what are you expecting from markets from here? What number are you using?

Davinder Athwal -- Chief Financial Officer

So we'd take the market at the end of the quarter, so at the end of June, and what we do is we apply a 1% per quarter market increase, Will. And good morning, by the way.

Will Cuddy -- J.P. Morgan -- Analyst

Can you please remind us how the lower interest rates will impact the cash sweep revenue that flows through your wealth management segment?

Davinder Athwal -- Chief Financial Officer

So we've not given specific guidance on balance or anything like that. But the way you should think about it Will, though, is about for every 25 bip change, think about a $4 million to $5 million impact to segment income.

Will Cuddy -- J.P. Morgan -- Analyst

And is just from symmetrical for increases and decreases?

Davinder Athwal -- Chief Financial Officer

Correct, up and down.

John Clendening -- Chief Executive Officer

Annualized.

Davinder Athwal -- Chief Financial Officer

Annualized.

Will Cuddy -- J.P. Morgan -- Analyst

Great. And then just last one. Can you elaborate on the marketing spend, why in the TaxAct segment why it was lower than expected? And why did you push some of the spending later in the year around some of the initiative spending?

John Clendening -- Chief Executive Officer

John here, Will. Thanks for the question. I'll go ahead and tackle that one. With regard to marketing, we're constantly looking to optimize the spend levels.

And as you know, the season gets quite dynamic. We've made some investments in martech on the last year or year before that give us a better read around what are the returns we're getting with respect to marketing. And so we make calls on that all the time, even daily toward the end of the year. And so our assessment was that there'd be a better opportunity to spend some of that money to something different, namely getting a head start on improvements to the client experience.

And so with regard to the timing of marketing or the amount of marketing toward the end, that's the scoop there. And Davinder, do you want to capture the second part around sort of initiative spending?

Davinder Athwal -- Chief Financial Officer

Yes. So as you know, in this business, we tend to typically start ramp up spending for initiatives the next tax year right after conclusion of the first tax year. That's kind of where we are. And as we look into next year, I think John had mentioned some of this last quarter.

We think about improving user experience and things like that. We see quite an opportunity, quite a big opportunity to kind of improve our product customer experience and things like that. So the expectation is that we'll be spending that a little bit sooner this year actually than last year. So we may see some more of that come through earlier, so coming in Q3, as well as Q4 as opposed to a year-over-year comparison.

Will Cuddy -- J.P. Morgan -- Analyst

Great. Thank you for answering my questions.

Operator

Our next question or comment comes from the line of Brad Berning from Craig-Hallum. Your line is open. Mr. Berning, you may need to unmute your phone.

Brad Berning -- Craig-Hallum Capital Group LLC -- Analyst

Good morning, guys. Sorry about that. Wanted to talk a little bit more about BluPrint, if you could expand a little bit about what are you seeing on partnership interest as we move forward? And the second part of that is are you seeing the actual results as you get through some of the testing that are proving that there's an interest by customers for products and that there's an ROI for the partners? And just kind of can you help frame the progress that as you continue to learn more about the efforts on BluPrint.

John Clendening -- Chief Executive Officer

Sure, Brad. John here. Thank you for the question. Appreciate that.

So this year, just as a kind of a backdrop, we rolled forward with something similar to what we did last year with regard to this analytic tool, looking at contact situation, seeking permission and then going back with offers. We are in the midst still of email campaigns against those that have raised their hands. It's kind of a similar message that we've had in the last call, which was that we continue to see demand for the BluPrint report itself. People are giving us consent in large numbers.

And we're still working through how to best capitalize on that with regard to connecting them to offers. And so it's certainly been the case that we see demand there. Proving out will this be a material impact into our financials has been more difficult to come by, frankly. So we're currently looking at the best ways to configure that offering for next year with hopes that over time it will become incrementally contributing to us from an economic point of view.

There's not a whole lot of spend on it. It's more the, like from the investment point of view, it's more can we really figure out the client experience. The other thing I think is important to note from a perspective point of view is that the amount of clarity we have, and we've said this the last call as well, around what needs to happen in the core experience itself, it's far greater than ever before. It's why we've shared on that call and this call a sense of strong optimism around the path we're on to improving the client experience.

And we feel like as we improve the core client experience, we'll also get receptivity around the offer set that goes along with BluPrint as well. We're currently looking at what's the right sort of partner set for next year. I think part of your question, but I'm thinking back on it was around what's in it for partners. We're in active discussions with partners as well.

We want to make sure we're in a situation where there's value for everybody in an offering like that. Again, as noted, it's been a bit of a challenge to convert interest into action, but we want to see that through and see if we can make that work for us.

Brad Berning -- Craig-Hallum Capital Group LLC -- Analyst

And then one follow up on the HD Vest product initiative -- tax-efficient kind of product initiatives. Just wondering if you could give an update on the kind of the product, the first product rollout for this year a little bit further. Secondly is is there an opportunity to accelerate in 2020 the number of products that you're thinking about rolling out next year and getting kind of the brand further developed on the tax efficient kind of advice offering product set?

John Clendening -- Chief Executive Officer

I'll take that one as well. With regard to the Tax-Smart investing initiatives, so Module one tax loss harvesting, we call it the tax loss harvester, is what we've begun to implement here. And so the focus of this year is going to be around finding ways to build the best possible adoption and usage. And on top of that, we are looking at another couple of modules to get into beta this year.

I'm feeling good about our prospects of doing that. As well as we continued to add more robustness, if you will, to the harvester itself. So we've got these 250 advisors that are going through the training right now. We're moving at a, I'd say a good clip.

It's measured proportionate to the ability for the advisors to get up to speed, to get trained. But we're also moving at a pretty good clip from the standpoint of, gosh, it was only around a year ago where this was on a piece of PowerPoint, a PowerPoint presentation, and here we are already commercializing. So we're looking to expand on that for the end of the year, get to a larger number of advisors and just work super hard around building out these next couple of modules, again, beta toward the end of this year and then roll out next year. So as it relates to acceleration, we haven't finalized budgets and those sorts of things for next year.

We though intend to pursue the path on Tax-Smart investing. We think the opportunity's unbelievable with regard to automating the captured tax alpha. We feel like we're going about it in ways that no one else is even thinking about it, and the value for the consumer and the advisor is enormous. So we're going to see this one through and put every ounce of our energy into making it so that this is a growth driver for the firm and for advisors.

Brad Berning -- Craig-Hallum Capital Group LLC -- Analyst

Thanks a lot.

Operator

Our next question or comment comes from the line of Alex Paris from Barrington Research. Your line is open.

Chris Howe -- Barrington Research Associates -- Analyst

Good morning. This is Chris Howe sitting in for Alex.

John Clendening -- Chief Executive Officer

Good morning, Chris.

Chris Howe -- Barrington Research Associates -- Analyst

Good morning. My first question just relates to the integration of 1st Global with HD Vest. Could you share some color, additional color on some of the revenue and cost synergies that you saw in the quarter, and what the interim outlook is for extracting more of those synergies and the potential runway we have here for revenue synergies?

Davinder Athwal -- Chief Financial Officer

I can take that one, Chris. Just a reminder, what we've said is that we expect on the integration side to have about $10 million in 2019 and $18 million in 2020 for a total of $28 million. In terms of synergies, we've provided -- we announced acquisitions that we thought would be a fully synergized run rate as well. So where we are today and as we kind of look through the end of second quarter, we're about $4.5 million of integration costs, and there's also about $6.5 million of transaction costs, which are outside of that $28 million total.

So that's what I would guide you on in terms of integration. In terms of synergies, and I'd just observe that we're on track to meet the targets that we had outlined. At this point, we don't see any risk to not getting to where we thought we would in the time frame that we thought we would. And then just to be clear, I think you mentioned revenue synergies.

So we didn't actually guide to any revenue synergies. These are all cost and contractual synergies, just as a point of clarification.

John Clendening -- Chief Executive Officer

Yes. Outside of the contractual that's automatically built in to the relationship with National Financial, we didn't have any sort of product synergies or stuff like that. But with regard to the contractual relationship with Fidelity National Financial, definitely some positive revenue synergy there just to amplify it.

Chris Howe -- Barrington Research Associates -- Analyst

OK. That's all the questions I have for you right now. Thank you.

Operator

Our next question or comment comes from the line of Chris Shutler from William Blair. Your line is open.

Chris Shutler -- William Blair -- Analyst

Good morning. Do you feel like you can improve the TaxAct retention meaningfully while also increasing prices? I know that's been a bit of a challenge in recent years. But is there anything about kind of a new yet-to-be-announced strategy or things that you're working on that make you think that you could increase retention in the relatively near term?

John Clendening -- Chief Executive Officer

John here. Yes. Short answer is yes. We do feel like we can do that.

The kind of double click on that is that as noted in the last call, we've had the chance to literally rip apart the current client experience with fresh eyes. Folks that have been in and around the space, super experienced with regard to consumer digital. And the number of opportunities we see to improve the client experience as you sort of look at the, kind of just have the mind that sort of classic waterfall sort of view of a digital type business with people coming in at the top and the ultimately the close or e-file rate for us, we see a ton of opportunity to do that. And I feel like there's an opportunity to do it with some pricing.

We've been saying for some time now that we're looking to get to a more balanced growth profile on this business with pricing more moderated, but that there's still room on pricing. And that's still our view. We haven't changed our view on that that there is the pricing lever still here for us. It's available.

And yet alongside that, we want to make those improvements around the other aspects of this business, inclusive of retention rate, inclusive of e-file percentage, inclusive of driving more traffic. We see opportunities in all of those. Now specific to retention, yes, I think that that'll be a manifestation of improvements in the experience. That's why I led with that first.

I feel like with more moderated pricing, that kind of the sticker shock issue will begin to abate. And that again, all those things together will have a much more balanced profile with regard to growth in that business.

Chris Shutler -- William Blair -- Analyst

OK. Thanks for that. And then in the wealth management business, maybe just talk about advisor retention. It looks like you lost about 150 advisors in the quarter, if I'm doing my math right, if I back out the 820 1st Global advisors that came over.

So maybe just dive into those numbers a little bit more.

John Clendening -- Chief Executive Officer

Yes, absolutely. And thank you for the question there. The count did go down by about 145 quarter to quarter. You're onto it.

The change was on the HD Vest side where we removed advisors that were either inactive or otherwise no longer met our requirements. As we've shared in the past, we're at the tail end of the kind of structural process to do that. And go forward, I think this is likely this next quarter will be the one where it's more of a steady state approach where you have just more of a normal number of folks that retired or drop out or whatever. Again, these are de minimis sorts of producers that end up going that route.

But I think we can say that we can kind of put to bed as of this call the structural program and think more of a steady state go forward. So definitely some increases in productivity, if you will, to come from that, but the reductions were all sort of de minimis and changes de minimis, non-producers on the HD Vest side.

Chris Shutler -- William Blair -- Analyst

OK. Great. And then let's see. Lastly, Davinder, I don't know if you don't mind going back through, you gave some of the Q3 guidance pretty quickly, some of the segment guidance which I don't think is in the press release.

Would you mind reiterating that?

Davinder Athwal -- Chief Financial Officer

Yes. Happy to do that, Chris. Just give me one second here. So for the third quarter, what we're expecting, Chris, is TaxAct revenue of between $3.5 million to $4 million and a related segment loss of $13.5 million to $14 million.

And on the wealth management side, including 1st Global now, we expect third-quarter revenue of $139 million to $145.5 million and related segment income of $18.5 million to $21.5 million. And on a consolidated basis, again with 1st Global in, we expect total revenue of between $142.5 million to $149.5 million. Adjusted EBITDA between a $4 million loss and breakeven. And non-GAAP net loss of $10 million to $14.5 million.

And that's a net loss, just to reiterate, which equates to about a $0.20 to $0.29 per share GAAP net loss attributable to Blucora.

Chris Shutler -- William Blair -- Analyst

Great. Thanks a lot for doing that. I appreciate it.

Davinder Athwal -- Chief Financial Officer

Yeah. You bet.

Operator

[Operator instructions] Our next question or comment comes from the line of Dan Kurnos from The Benchmark. Your line is open.

Dan Kurnos -- The Benchmark -- Analyst

Great. Thanks. Good morning. Just either John or Davinder, just want to talk a little bit about margins and kind of ROI here.

Obviously the tax segment loss that you're guiding in Q3 is a lot larger than we've seen historically. You have some synergies. You guys continue to sort of outperform on the quarters. So I'm just curious, investing in tax, just sort of what's kind of your ROI payback period for the aggressive investment that we're seeing as you guys obviously are using your proceeds to lay the groundwork for the future?

Davinder Athwal -- Chief Financial Officer

Maybe just to start with, one of the things we're seeing this year maybe which is different than prior years is the fact we had a bit of a revenue shift, go from Q2 into Q1. When you think about how we ended Q1 then went into Q2, there was already strong overperformance right at the end of kind of that March time frame. So ended up that we got more dollars, more of our revenue dollars in Q1 versus Q2 compared to historical periods. So that's part of what you're seeing which is causing that reduction in segment margin.

Now on top of that, it's true to say that we are actually spending I'd say quicker this year than we have in prior years. So one of the things that John's talked about in the past is how with Curtis now under, or in place I should say with a tax season under his belt, he's got some really great ideas. We think about how to improve things like customer experience, product design and so on. And we just started launching that sooner than we would otherwise.

So you actually are seeing a little bit of that creep into Q2 results as well compared to -- and Q3, as a matter of fact, when we think about the guidance compared to prior. In terms of ROI, the way we think about it really is around -- it's organic investment. So even if you think about our capital allocation policy, it really comes down to what do we need to do in order to drive things like kind of a start rate and the conversion rate and retention rates that we think are possible and what kind of product we need to get to those KPIs. So it's really around that more so than kind of a hard and fast ROI on any dollar we spend.

Dan Kurnos -- The Benchmark -- Analyst

Got it. That's helpful. And then maybe just a little bit nitpicky, but just on the tax side in the quarter. I don't know if you guys intentionally took -- the segment did -- or income did beat pretty meaningfully at the end, which not surprising given price.

And John, your commentary around you paid units having to go back into free, but maybe paid unit's a little softer. Did you guys actually take pricing up a little bit more aggressively at the very end of tax season, or was it just kind of in line with what we've seen historically following the leader?

John Clendening -- Chief Executive Officer

No. There wasn't sort of a hockey stick or anything like that on pricing toward the end of the season. That was not a dynamic that we looked to do, nor did we execute on last tax season. So that was not a factor.

Dan Kurnos -- The Benchmark -- Analyst

OK. And then -- so then John, let me just ask you this. I just want to make sure on that. But on the wealth management side, everybody's been kind of focused on the synergies with 1st Global, and obviously the margin outlook for HD Vest in the back half is very healthy.

But even in 2Q it looks like you got some upside. So maybe if you want to just go back and talk about some of the benefits that you've been seeing from the clearing transition that may be flowing through and just maybe parse out kind of organic versus inorganic benefits in the back half of the year in terms from a margin perspective would be helpful.

John Clendening -- Chief Executive Officer

Maybe I'll take a cut at that and then ask Davinder to amplify it. But as it relates to the integration, clearly it's dominating our focus given the truly remarkable economic power that that deal, as well as the fact that it extends us in a very attractive way with regard to the tax professionals that we work with. And so one does begin to see the synergies, the revenue synergies even sooner, nearly immediate frankly, with regard to that because of the contractual relationship already established with Fidelity National Financial. And so the cool thing about the deal in part was that while there was some revenue synergy, certainly it was all contractually identified as we built our models and then gave guidance around it.

And so you're seeing that benefit right away with regard to the cash suite. And so that's the big positive for us. With regard to the remaining elements of integration, certainly it's around cost reduction. It's firmly within our control.

We've already begun marching down the path of identifying overlapping elements of the cost structure and adjusting accordingly. And so we'll continue to see those benefits throughout the year. As Davinder noted in a prior question that we feel confident that we're going to get sort of every ounce of the economic impact that we thought we would out of this business. And from the prepared remarks, I'm sure they were looking to accelerate where we can accelerate here.

Organically, interesting. Yes, we're looking at -- I'll just give one example that's got a lot of the HD Vest advisors interested is there's some elements of the product set around for-fee advisory that the 1st Global organization is a bit further along. We've got potentially more product on the shelf, if you will, with regard to product. We didn't bake any of that into our synergy numbers.

That would be an example of extending some product into the HD Vest channel that they seem to be interested in, and so we'll look to pursue that as well. On top of that, of course, we've got Enrique Vasquez is here who's been with us just a couple of months. And his job one is get his team reassembled, drive on the integration efforts and begin to spend more time in developing organic growth strategies around lifting assets and spurring more conversion into for-fee advisory. They'll take shape in due course.

We need to give him an opportunity to get another couple of months under his belt as we look to develop our growth strategy in that business. We certainly didn't have any previously and sort of starting from zero. But clearly, you bring in a new person of that caliber, you want to give him some rope to develop the right approach to invest for that business. Davinder, would you add anything to that?

Davinder Athwal -- Chief Financial Officer

Maybe just a couple of things from an organic perspective, John. One is just a reminder, the markets are up quite a bit, so that gives us the lift as we go into the back half of the year. In addition to that, we're seeing a return of transactional revenues as well in the back half of the year. And that, together with some cost efficiency projects in place I think is what's resulting in what you're seeing there.

John Clendening -- Chief Executive Officer

Just the other thing to emphasize is the Tax-Smart investment initiative is just now commercialized. But we'll be paying very close attention to the techniques that advisors use to capture tax alpha and looking to see how that manifests itself in terms of organic growth opportunities. We think over time we can work that into something that's quite meaningful and so we have a super strong ROI on the investment to it. So, more to play out there, but it's something that we're paying close attention to relative to catalyzing growth.

Dan Kurnos -- The Benchmark -- Analyst

All right. Perfect. Good luck, and good quarter.

Operator

I'm showing no additional questions in the queue at this time. I'd like to turn the conference back over to management for any closing 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. They're at the heart of the success that we have and make our business so enjoyable. We're pleased to report another strong quarter and look forward to speaking with you next quarter.

Take care, everybody.

Operator

[Operator signoff]

Duration: 45 minutes

Call participants:

Bill Michalek -- Vice President of Investor Relations

John Clendening -- Chief Executive Officer

Davinder Athwal -- Chief Financial Officer

Will Cuddy -- J.P. Morgan -- Analyst

Brad Berning -- Craig-Hallum Capital Group LLC -- Analyst

Chris Howe -- Barrington Research Associates -- Analyst

Chris Shutler -- William Blair -- Analyst

Dan Kurnos -- The Benchmark -- Analyst

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