Blucora (BCOR) Q4 2019 Earnings Call Transcript

Blucora (AVTA)
Q4 2019 Earnings Call
Feb 19, 2020, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Blucora, Inc. fourth-quarter 2019 earnings conference call. [Operator instructions] Please be advised that today's conference is being recorded. [Operator instructions] I would now like to hand the conference over to your speaker today, Bill Michalek, vice president of investor relations.

Thank you. Please go ahead, sir.

Bill Michalek -- Vice President of Investor Relations

Thank you, and welcome, everyone, to Blucora's fourth-quarter 2019 earnings conference call. By now, you should have had opportunity to review a copy of our earnings release and supplemental information. If you've not reviewed these documents, they are available on the investor relations section of our website at blucora.com. I'm joined today by Chris Walters, chief executive officer; and Todd Mackay, our chief business operations and development 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, available on blucora.com, includes the full GAAP and non-GAAP reconciliations. With that, let me hand over to Chris.

Chris Walters -- Chief Executive Officer

Thanks, Bill, and good morning, everyone. I'm excited to be speaking with all of you for the first time in my capacity as CEO of Blucora. I have had the pleasure of serving on Blucora's board of directors since 2014. And from that seat, have played an active role in developing our current strategy, including driving our tax-centric vision and championing our acquisitions of HD Vest, First Global and HKFS.

I've also had the benefit of great insight into the business, its successes, growth opportunities, challenges and how Blucora has been able to position itself for the future. It's exactly for these reasons that I was so interested to expand my role at the company and take the CEO position. I believe Blucora has the potential to accelerate organic growth with a cash engine that can be a great enabler. I'm also genuinely excited about the purpose of the company, including maximizing value for consumers and enabling them to live better financial lives.

In short, I couldn't be more pleased to transition to CEO and spearhead the next phase of our growth and work with all of you. We have a lot to cover today, including fourth-quarter results that were in line or better than our target ranges on all metrics, record annual performance for both TaxAct and Avantax and an update on tax season. So, let's dive right in. Starting first with wealth management.

Fourth-quarter wealth management revenue was 145.2 million and segment income was 19 million, both of which were at or above the midpoint of our target ranges. On a consolidated basis, net flows into total client assets were about 180 million, and we ended the quarter with 70.6 billion in total client assets. Net inflows into advisory assets in the fourth quarter were about 200 million, and we ended the quarter with 27.6 billion in advisory assets. Advisory assets as a portion of total client assets ended the quarter at 39%.

A few updates I'll call out here for wealth management. During the quarter, we completed the final business combination of our back-end processing and support functions in wealth management following the First Global acquisition which will allow us to operate even more efficiently. We enhanced our advisory service structure with regional teams, leveraging an area where First Global had great success to provide segmented groups of advisors with enhanced service and operational support through small dedicated teams. We also rolled out a robust action plan to enhance our operations and service metrics to improve the advisor experience.

The team has been successfully executing on the deadline to achieve results that will continue to integrate platforms and streamlined functionality. The initiative has been well received by advisors. We began cross-selling some of the more popular products between the legacy HD Vest and First Global advisor bases, including select home office advisory solutions and a retirement planning offering with more products to come in Q1, all to the benefit of clients. Recruiting continues to be strong, with more than 60 new advisors joining in Q4, including new tax pro advisors, as well as established advisor transfers.

We also added another high-value accounting firm in the quarter with approximately 10 million in cumulative accounting revenue and representing an estimated 1 billion prospecting opportunity in total client assets. As it relates to our proprietary Tax-Smart Investing platform, or TSI which is designed to help advisors systematically identify and capture tax outlook for clients across multiple accounts, we have a few very positive updates. First, we ended the year with about 900 advisors on the platform, significantly exceeding our goal of 500, and we began to roll out our legacy First Global advisor base, adding about 100 advisors there. Overall feedback from advisors and end clients continues to be very good.

Second, we officially launched our second module, the Capital Gains Analyzer which captures and reports the annual capital gains estimates of mutual funds. This module allows our advisors to focus more on planning and client outcomes as opposed to data gathering. We also launched version 2.0 of the Tax-Loss Harvester which can identify losses to offset those gains for clients in a fraction of the time. The new version streamlines reporting and adds incremental lock-level detail and other data for deeper client conversations.

The last update on TSI is that we just launched this month a beta test of our third TSI module, the social security planner. This module helps clients optimize their social security benefit based on their specific cash flow needs and maximizes relative benefits for each partner in a couple. Early feedback on this module is quite positive. The other big news in the broader wealth management arena recently was our announcement, in early January, of our intent to acquire HK Financial Services.

This pending transaction reinforces our strategy of delivering tax-advantaged wealth management solutions to advisors, CPA firms and end clients. The combination with HKFS is expected to add approximately 4.5 billion to Blucora's total client assets, bringing the total, based on year-end numbers, to more than 75 billion. By comparison, we ended 2018 with just over 42 billion, so that would represent almost 80% growth in total client assets in about one year. The complementary nature of the transaction is expected to expand Blucora's addressable market, add growth and profit engine and enhance and expand available growth opportunities, ultimately, further strengthening the company's established leadership in tax-aware investing.

Most importantly, it enables us to serve CPA firms the way they want to be served, either in our independent model with CPAs becoming wealth management advisors or a turnkey RIA for CPA firms who prefer to essentially outsource the wealth management work to a firm they trust while ensuring close coordination. As we enhance our offering to CPA firms and give them more optionality, it will increase the performance of recruiting efforts. As a reminder, HK Financial Services will be run as a third division of Blucora, with very little integration and no overlap, eliminating risk of disruption to the Avantax advisors. We continue to expect the transaction to close around the end of the first quarter, subject to customary closing conditions.

For the company as a whole, we look back at the full-year 2019. The team has really accomplished a great deal, including: growing total revenue by 28%, including the addition of First Global starting from the May acquisition date; growing adjusted EBITDA by 15%; growing non-GAAP earnings by 11% and crossing the $2 mark at $2.11 diluted net income per share; generating more than 80 million in free cash flow; improving wealth management revenue by 36%; achieving record net flows, including approximately 1 billion into advisory; acquiring First Global which added significant scale, complementary capabilities and high recurring revenue; achieving 6.5 million in synergies related to First Global which is more than double our original estimate at the time of acquisition; achieving our 22nd consecutive year of revenue growth at TaxAct, while growing 12% and maintaining stability in our monetized units; implementing a share repurchase program following a $100 million authorization; and last but not least, bringing great new talent into the organization. In 2019, we generated strong financial results while investing for the future, strengthening our platform and laying the groundwork to capture the significant opportunities we see ahead. While we've made good progress, I'm even more excited about where we'll go from here.

So, let's move to tax preparation and our updates on the current season. As you may be aware, total IRS filings are roughly flat year over year and DDIY filings are up about 3.5% as of February 8. Competitive intensity continues to be high with the volumetric leader spending aggressively on marketing, with a messaging focused around their free offering and the storefront players focusing on both free and hybrid-assisted offerings. Against this backdrop, we came into this year with the goal of building on the success of last season, targeting to achieve more balanced growth across units and pricing.

To do so, we made several significant improvements, particularly in our user experience which I'm excited about and will discuss in more detail in a moment. As you all know, every tax season is unique, and this one is no different. So, far, this season, we're excited about a lot of the progress we are making, but at the same time, we do have opportunities to optimize in certain areas as we move forward through the season. So, let's touch on the areas we are excited about, as well as the areas we want to optimize a bit further.

In the last couple of calls, we have discussed the need to improve our customers' experience. And to do so, we have continued to invest both in updating our legacy code, as well as reimagining the user experience. I'm happy to share that we started to see the fruits of our labor, for example, our conversion or complete rate is up five points versus this time last year which is a good indicator that the off-season improvements we made in the product and underlying engine were the right ones and having the desired result. Also, our retention for returning customer rates are also running ahead of last year by four points.

As well as those bright spots, we have also faced challenges. And this is still a very competitive market, especially around the free product, where today, we don't enjoy the advantage we have versus the volumetric leaders that we do with our higher-end SKUs in terms of pricing. The price to acquire a free customer is significantly up. We continue to optimize in this space to find the right balance of cost and profitable growth.

Along with pressure with the free product, we were also a bit out of position to start the season from a marketing perspective, with our messaging initially not focused on what was resonating with early season filers, resulting in a top-of-funnel that has been below expectations, albeit improving. At this relatively early point in the season, as has been the case at this point in time in previous seasons, our performance lags the overall market which starts down about 3% through February 16, and E-files down 11%. A couple of things I would note here: one, we delayed our ramp in marketing spend somewhat compared to last year; two, our business tends to make up ground in the second peak of tax season, given our focus on paying filers who disproportionately file later in the season. We see opportunities to improve our approach and top-of-funnel performance in the second peak.

This is an area where I have significant experience, and I'm working closely with the team to ensure that we are in the best possible position for the remainder of the season. All factors considered, we remain comfortable with our prior outlook for the first half of 2020 which includes segment margin in the range of 56.7% to 57.7% on revenue growth of 3 to 5% versus the comparable prior-year period as adjusted for SimpleTax. Switching back to our product experience. During the off season, the No.1 focus of our teams has been improving the client experience.

The team spent countless hours scouring over every page and every word on the customer journey, making it much easier and more enjoyable while removing friction points for filers at every level of complexity. We believe this is reflected in a significantly improved customer experience this season which we hope will continue to drive increases in conversion in-season with less leakage in the customer funnel, as well as better retention in subsequent seasons. We have also launched new and improved branded features which we believe will have strong appeal and differentiation. These include My Tax Plan.

This new feature creates a custom plan for TaxAct filers to save more on taxes next year. Our technology personalizes each plan to the customer's unique tax situation, provide specific savings amounts and includes a downloadable check list of actions to save. We believe this feature will be a real and differentiated benefit for customers and help bring them back next year. Pro Tips is a visually enticing way to reveal lesser-known tax advantages, customized for the individual filer that help the customer get a bigger refund this year and for years to come.

This feature is expanded and greatly enhanced for this season. We also brought back some of our more popular features like an enhanced personalized Deduction Maximizer which helps customers uncover additional deductions that, in our experience, are commonly overlooked, as well as our $100k Accuracy Guarantee. We believe we're the only tax, online tax software company that offers this level of personalized insight and guidance into the financial health of our customers. This delivers significant value to our customers who can save real money now and for years to come.

One last update here is our assisted offering where tax gurus offer live tax help. As you may recall, we piloted this offering last year and are expanding our testing this season. Our goal is to exit this season with a fully vetted plan to launch a more fulsome offering, profitably and at scale next season, should our testing proved a viable economic model. Overall, we've made great strides in improving our product positioning and capabilities in this business.

Curtis has done a great job in his first full off-season at the helm, and the product has significantly improved and already showing results with higher conversion rates. I see a great deal of opportunity for the business over the medium to long term, and that's perhaps one of the things that has been most exciting to me in terms of my initial observations. The product improvements will drive higher retention rates going forward. And when combined with improved marketing efforts, we'll be in a stronger position to grow units in coming years.

In conclusion, across the full business, we had a solid fourth quarter which capped a strong 2019 for Blucora, with record performance in a number of categories. The company has made good progress positioning itself for future growth. And our expectations for this tax season remain in line with our previous estimates. While I'm only in week No.3 of my tenure as CEO, and I'm still learning and assessing, in my initial observation, I already see a number of ways we could optimize to spur higher organic growth rates.

With that, let me turn it over to Todd.

Todd Mackay -- Chief Business Operations and Development Officer

Thanks, Chris, and good morning, everyone. It's good to be here today. I'll provide some additional detail on our fourth-quarter results and add color on our outlook for Q1 and the tax season. For the fourth quarter, we reported total revenue of 149.4 million which was a bit above the midpoint of our guidance; adjusted EBITDA loss of $733,000 which exceeded the top end of our target; non-GAAP net loss of 4.8 million or $0.10 per share, both better than the top end of the range; and GAAP net income of 17.3 million or $0.36 per share which surpassed expectations based on better operational results, as well as a $49 million tax benefit resulting from the release of valuation allowances associated with our NOLs and our ability to utilize them in future periods.

In terms of segment performance, and beginning with wealth management, revenue was 145.2 million and segment income was 19.1 million, both of which were at or above the midpoint of our target ranges. Segment income included a $540,000 legal settlement that was not contemplated in our guidance. On a pro forma basis for the First Global acquisition, wealth management revenue was up 2% year over year, driven by advisory and transaction revenue which were up 4% and 13%, respectively, and more than offset the decline in mutual fund revenue share and sweep revenue and fees driven by interest rates. Net inflows into advisory assets in the fourth quarter were about 200 million, and we ended the quarter with 27.6 billion in advisory assets.

Net flows into total client assets were approximately 180 million. And we crossed the 70 billion threshold for the first time, ending the fourth quarter with 70.6 billion. Advisory assets as a proportion of total client assets ended the quarter at 39.1%, also a new record. Moving on to the tax prep segment.

TaxAct revenue for the fourth quarter was 4.2 million, up 4% versus the prior year. Segment loss was 12.3 million, up by about 3.6 million versus the prior year, driven by the product development investment work that we discussed over the past couple of quarters. Finishing up on the fourth-quarter performance, unallocated corporate operating expenses were 7.6 million which is lighter than we expected as we were able to find efficiencies and defer some planned spend. Moving on now to liquidity.

We ended the quarter with cash and cash equivalents of 80.8 million, and our net debt was 318.9 million, resulting in a net leverage ratio of 2.3 times at the end of December. During the quarter, we repurchased approximately 744,000 shares at an average price of $21.05 per share, for a total of about 15.7 million in repurchases and representing about 1.5% of our shares outstanding. We have about 72 million remaining under our current share repurchase authorization which will allow us to continue to be opportunistic in the future as we deem appropriate. Finally, as it relates to the acquisition and integration costs in the fourth quarter, we recorded $8 million, of which about 60% was related to First Global integration and the remainder related to costs associated with the HKFS acquisition.

For the first quarter, we expect TaxAct revenues to be between 131 million to 136.5 million or approximately 64% of the first-half 2020 revenue, and segment income of 77 million to 80.5 million. We expect Avantax first-quarter revenue to be between 140 million and 145 million, and segment income of 16.5 to 18.5 million. On a consolidated basis, we expect first-quarter revenue to be between 271 million and 281.5 million; adjusted EBITDA between 85 million and 91 million; non-GAAP net income of 74.5 to 80.5 million or $1.52 to $1.64 per diluted share; and GAAP income attributable to Blucora of 31.5 to 34.5 million or $0.64 to $0.70 per diluted share. This includes unallocated corporate operating expenses of between 8 and 8.5 million.

As we've done in the past, we expect to provide a full-year outlook during our first-quarter call upon the completion of the tax season. There are a couple of items I'll mention now that may be helpful as you look ahead for modeling purposes. Regarding NOLs, in 2019, we utilized approximately 70 million in NOLs, leaving a growth or a pre-tax balance of 392 million. Given that we have released a large portion of valuation allowances associated with our NOLs at once rather than quarterly offsets that we have shown historically, we will show higher GAAP tax rate in 2020, estimated at approximately 30%.

In terms of nonrecurring items, we expect approximately 13 million of remaining integration costs relating to First Global which should close out our integration expense related to the transaction and keep us on our originally targeted budget. We also expect to close our acquisition of HK Financial Services by the end of Q1 or shortly thereafter, subject to satisfaction of customary closing conditions. We estimate that approximately 8 million of the planned 10 to 11 million of integration costs to hit in 2020, as well as the transaction costs. In Q1, we also expect to record about 6.5 million related to our senior management transition.

This concludes our prepared remarks. We will now turn it over to the Operator for Q&A. Operator?

Questions & Answers:

Operator

[Operator instructions] And our first question comes from the line of Chris Shutler from William Blair. Your line is now open.

Chris Shutler -- William Blair and Company -- Analyst

Good morning. First, I want to touch on the tax season. So, on this climb in starts and in e-file so far, can you give us a sense what those metrics look like for, I guess, the free versus the premium priced units? And how much of an impact the reduction or elimination of basic played into that?

Todd Mackay -- Chief Business Operations and Development Officer

Yeah. So, this is Todd. We don't break out the metrics of free versus premium as consistent with our past practices. As you know, in the past, we've been pushing for a stabler growth in monetized units, and we'll continue to do that, as well as stabilization in growth in units as a whole.

Chris Shutler -- William Blair and Company -- Analyst

OK. And I guess, the other one on tax is just given all the testing that you had done ahead of tax season, obviously, good to see conversion and retention rates improved significantly. But, I guess, based on your assessment, Chris, like, why do you think that the company was out of position early in tax season?

Chris Walters -- Chief Executive Officer

There are a few things around messaging. And actually, I'd break the point into product and marketing. I think we are exactly where we wanted to be from a product perspective. As I've noted, Curtis has done a remarkable job in literally every drop-off point where we could see consumers departing.

We have seen improvements in the core metrics. And so, ultimately, that will lead to higher conversion rates for everybody that makes it to us and likely higher retention rates year over year. So, really happy on that dimension. In terms of the marketing side, we were out of position, as described, and some of it was on messaging.

Early in the season, it, free, is an important element of messaging, and part of that is that free filers are more inclined to engage early. We don't have as a unique a value proposition there relative to the other players. However, it still is important to play into free early on in the season. So, the second thing is, we needed to be experimenting with a broader array.

Unlike product where you can test extensively before, you can test messaging and marketing a bit earlier, but you don't really get into channel performance level detail until your in-season and you can see how you're performing relative to competition, and so we had fewer things in flight to test and then scale than we'd ideally want. And so, part of what I've been doing since I've jumped in is working with the team to broaden the number of tactics that we're employing. And ultimately, we'll be able to allocate to those that are performing best in the last six or eight weeks of the season.

Chris Shutler -- William Blair and Company -- Analyst

OK, got it. And then, switching over to the wealth business. Just one or two questions there. So, you gave us the advisory flows of plus-200 million.

Can you give us the total net flows for the quarter, including the brokerage? And maybe just address the continued decline in the advisor headcount. I don't know if you could give a, like a production retention type of metric or at least give us some sense of what's going on from a retention perspective.

Todd Mackay -- Chief Business Operations and Development Officer

Yeah, sure. So, the total net flows were 180 million. And so, we saw a greater portion flow into advisory which is where we want the business to be moving. And in fact, we have -- are at record levels now in our advisory assets, at over 39% of our total AUA being in advisory or fee-based account which is the trend line that we want to continue to see.

On the asset movement out and advisor headcount side, the attrition in the fourth quarter, obviously, is seasonally in line with what we've seen in the past in terms of higher attrition going toward the end of the year. And we did have a couple of regrettable attritions, but overall in line and ahead of what we mapped out when we did the First Global transaction, so we're ahead of expectations internally there.

Chris Shutler -- William Blair and Company -- Analyst

Any sense, Todd or Chris, when we should expect the headcount or if we should expect the headcount to stabilize if we certainly recognize the -- kind of the revenue retention or inflows are a lot more important than headcount necessarily, but any thoughts on stabilization of headcount just from a -- I think an opex standpoint would be helpful?

Todd Mackay -- Chief Business Operations and Development Officer

Yeah. We don't usually forecast advisor headcounts and the reason being that our model, obviously, is a little bit different than others in the market with newly licensed folks coming on board. We know that many of those will become successful in growing advisors. But many of those also churn out over time as it becomes apparent that that's not the right practice for them.

So, there's always flows in and out from a recruiting arm and from the newly licensed advisors. Important to note that those guys aren't producing advisors usually at that point anyway, and so the measures that we look at internally and don't necessarily report on but, are the average production per advisor over time, and we're comfortable with those numbers.

Chris Shutler -- William Blair and Company -- Analyst

OK, thank you.

Operator

Our next question comes from the line of Dan Kurnos from Benchmark Company. Your line is now open.

Dan Kurnos -- Benchmark -- Analyst

Great thanks, good morning. Chris, since you guys bought TaxAct back in '12. I don't think I've ever heard the company say they've been well positioned from a marketing perspective going into the tax season, and so I don't know that this is any different. I'm just curious because kind of part of the prior thought process was to get a more data-driven approach and possibly push different marketing channels.

I think you alluded to some of that. So, I'm just kind of curious about maybe how you're reallocating or shifting your spend. And kind of what you're putting in place going forward to be maybe less reactionary, understanding that you made the very fair point that the value prop is a lot less compelling and free than it is when you get into the paid funnel?

Chris Walters -- Chief Executive Officer

Right. And so, I think our team had made some strides in terms of being more data-driven and experimenting in the new channels. I'd say there was a heavy shift prior to my arrival to almost exclusively, kind of bottom of the funnel digital tactics. As you can see, some of our competitors are doing a lot more top of the funnel, so you're probably all seeing an extraordinary number of television ads and sponsorships.

And what it requires is the right set of tools and analytics to understand the impact of those other channels, and so I think we're going to broaden out a bit and be working more with kind of some of the traditional mass channels, and implementing tools that will allow us to understand the impact of those and a broader array of digital tactics. So, there are a variety of marketing models, even in terms of how you pay your marketing partners, and so we're looking at a broader set of tactics and alternative models in terms of how we engage marketing partners, and applying a new set of tools that will help us better understand and optimize within season. That will have the most pronounced impact in the coming years, so we won't be having the same conversation next year about being out of position at the start of the season. This is an area where we can make great strides comparable to the strategy that we've made in product.

Dan Kurnos -- Benchmark -- Analyst

Got it. That's helpful. And then, just as you look, as you did mention, just on the free competition, and obviously, with the change in the IRS ruling, either these guys now have to show free on search. And given what you just said, do you think you can still kind of accomplish the priming of the funnel the way that you want to, this year, from a free perspective?

Chris Walters -- Chief Executive Officer

I think we will not be as focused on free for the remainder of the season. As I said, it's important early in the season. But we have to get the right message out to a very large number of consumers to ultimately have them be aware and engaged in our product. As was described earlier, the wonderful thing is the return associated with our marketing spend will be higher for this year and going forward based on some of the product advancements that we've made and all the metrics that we see, and so we won't be as focused on free for the remainder of the season.

We will be focused on ensuring that we're testing and, ultimately, leveraging the channels and tactics that are driving the highest return.

Dan Kurnos -- Benchmark -- Analyst

Got it. And then, to that point, and this is probably a bit of an unfair question, but last year, to sort of make up for the pressure of free, we saw some pretty aggressive pricing from the competition. I don't know if you have a view on sort of timing or when that uplift begins since we're so early in the tax season process, but you still have a relatively healthy pricing delta. I'm just trying to get a sense of how much of a lever you think you have there versus just simply going after paid unit growth.

Chris Walters -- Chief Executive Officer

So we always look at price as something throughout the season that we're contemplating what refinements we should take in-season and when. This year isn't any different, and so we're looking at that now. We do have room, based on where we are, if we want to push price. And ultimately, it's going to be directly tied to the effectiveness of our marketing activities.

And based on where we get to and where we see opportunity, we will take price selectively.

Dan Kurnos -- Benchmark -- Analyst

All right. Thanks, appreciate it.

Operator

[Operator instructions] Our next question comes from the line of Will Cuddy from JP Morgan. Your line is now open.

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

Good morning. So, Chris, you were on the Blucora board going back to the decision to acquire HD Vest and divest the legacy Internet businesses. It would be helpful to talk more about your vision for the business going forward. With that in mind, how do you think about the vision for synergies between wealth management and TaxAct over the medium term? And more specifically, how do you think, at a high level, about the next leg of opportunities for collaboration between the two businesses beyond Tax-Smart Investing.

Chris Walters -- Chief Executive Officer

So I'm really optimistic about the opportunities across the business, and we will be very targeted about testing a variety of those opportunities. I'll give some examples of things that can be done. But ultimately, I'll be working with the leadership team, the broader team here, over the coming months to prioritize those areas. So, the initial vision that we had when we made the acquisition was there was a real opportunity for collaboration.

A lot of the focus to date has been on driving the performance of each of the businesses independently. So, there's been a little bit less investment than initially anticipated and realizing value across the businesses, but there are a number of things that have been observed over the years, and even in my short time in this role, where I believe we can see real value and drive higher levels of organic growth in both businesses. I'll provide a couple of examples of things that could be done. These are not certain that we'll be testing these pads, but there are a number of areas across the business.

So, one great example is we have a very large number of professional tax or tax professionals that utilize our software product and TaxAct. That number is actually larger than the number of wealth advisors that we have on our wealth management side of the business. It may be that there is a meaningful opportunity. And what we don't have a sense of yet is what portion of those tax professionals that we serve with our software business ultimately would value the wealth second revenue stream that would come from wealth advisory, and so we'll think hard about how we ultimately can size that opportunity and potentially present it effectively to our pro tax software clients.

A second example is every single one of our wealth clients with our wealth advisors would value more end customers. We do have some very sophisticated skills and marketing on the TaxAct side of the business. We acquire a very large number of customers every year. And there's a question about how we can ultimately apply those skills and capabilities to support our wealth advisors in the wealth management business.

And so, those are two examples. As I said, I will be working with the team over the next few months to figure out what are the areas that we win into and test, but there are a number of areas where we can create value across the business.

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

Great. Building on that, so HKFS filled a gap in some of the addressable market. When you think about some of these opportunities moving forward, are there other gaps that it would be necessary to build additional tools or potentially acquire additional tools and capabilities like HKFS in order to fully realize the value from the overlap?

Chris Walters -- Chief Executive Officer

Well, so we really are excited about HKFS because we can, when we go to market and engage additional tax professionals and work with them to provide a second revenue stream, we now have a model that is really a high-involvement model or a lower-involvement model with HKFS in the portfolio. And so, our ability to close new advisors at our success rate in business development will increase. As we look across the portfolio, we see multiple areas where we can drive organic growth. And we have a clear strategy in terms of what we want to do.

M&A is not the priority, driving organic growth is the priority. That said, opportunities may arise that will help us accelerate what we're trying to achieve with targeted M&A, but that's really not the priority right now.

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

Got it. Could you also update us on your CFO search?

Chris Walters -- Chief Executive Officer

Sure. The search is in process. I can't provide a certain date when we'll have it resolved, but already spending time with candidates and look forward to actually finalizing a direction. It is my top priority from a team perspective, and we're working hard to solve that as quickly as possible.

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

Got it. And then, last one for me. So, the TaxAct expenses came in a little bit lower than suggested by the guidance, but there's also investment back into the business for the quarter. Could you talk about what drove the better-than-expected expenses in TaxAct for the quarter?

Bill Michalek -- Vice President of Investor Relations

Will, this is Bill. We were able to diverse, find some cost savings opportunities and defer some costs from Q4 into Q1.

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

Thank you for taking my questions.

Operator

Thank you. At this time, I am showing no further questions. I would like to turn the call back over to management for closing remarks.

Chris Walters -- Chief Executive Officer

Great. Thank you all for joining us today. In closing, I'd just like to say that I'm incredibly excited to have the expanded role with Blucora and have the opportunity to work more closely with our employees as we provide the best products, service and solutions to our customers and advisors and enable better outcomes for end clients. 2019 was a great year for Blucora, and I'm looking forward to keeping you updated on our progress.

Speak with you next quarter.

Operator

[Operator signoff]

Duration: 43 minutes

Call participants:

Bill Michalek -- Vice President of Investor Relations

Chris Walters -- Chief Executive Officer

Todd Mackay -- Chief Business Operations and Development Officer

Chris Shutler -- William Blair and Company -- Analyst

Dan Kurnos -- Benchmark -- Analyst

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

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