Stacy Ybarra - VP, IR John Clendening - President and CEO Eric Emans - CFO

Dan Kurnos - The Benchmark Company Alex Paris - Barrington Research

Good day, ladies and gentlemen. And welcome to the Blucora Fourth Quarter and Full Year 2016 Earnings Conference Call. At this time, all participants are in a listen-only-mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. As a reminder, this conference is being recorded. I would now like to hand the floor over Stacy Ybarra. Vice President of Investor Relations. Please go ahead.

Good morning, and welcome to Blucora’s investor conference call to discuss the fourth quarter and full year 2016 earnings. Before we begin, I’d like to remind you that during the course of this call, Blucora representatives will make forward-looking statements, including but not limited to statements regarding Blucora’s expectations about its products and services, outlook for the future of our business and growth initiatives, and anticipated financial performance for the first quarter and tax season. Other statements that refer to our beliefs, plans, expectations or intentions, which may be made in response to questions, are also forward-looking statements for purposes of the Safe Harbor provided by the Private Securities Litigation Reform Act. Because these statements pertain to future events, they are subject to various risks and uncertainties, and actual results could differ materially from our current expectations and beliefs. Factors that could cause or contribute to such differences include, but are not limited to, the risks and other factors discussed in Blucora’s most recent Quarterly Report on Form 10-Q on file with the Securities and Exchange Commission. Blucora assumes no obligation to update any forward-looking statement, which speak only as of the date the statement is made. In addition, during our call, our management will discuss GAAP and non-GAAP financial measures. In the press release, which has been posted on our website and filed with the SEC on Form 8-K, we present GAAP and non-GAAP results along with the reconciliation tables, and the reasons for our presentation of non-GAAP information. We have also provided supplemental financial information to our results in the investor relations section of our corporate website at www.blucora.com and filed with the SEC on Form 8-K. Now, I’ll turn the call over to John Clendening. Following his comments, Eric Emans will review fourth quarter and full year results and first quarter outlook. Then we’ll open up the call to your questions.

Good morning everyone, and thank you for joining our call today. We are calling you from Irving for the first time, and while the corporate headquarters won’t move here until the end of June, I’ve already moved my office to be closer to the HD Vest team as well as to shorten the flight to Cedar Rapids where most of the TaxAct team works. 2016 was an important year for Blucora as we made significant progress on our transformation into a simplified, streamlined, and synergistic technology-enabled financial solutions company. When I joined the team in April of last year, I spent a lot of time listening and learning. I confirmed that we have two good businesses well-positioned in attractive markets and with the potential to grow. I told you that we were focused on the four D’s: Divest, De-lever, Deliver and Drive. I’m pleased to say that we made strong progress on each of these, and exited 2016 even more convinced about the strength of our businesses and the opportunities that are ahead. As you know, we divested Infospace in August and Monoprice in November for a total of $85 million. We continued to de-lever the business by paying down $172 million in debt, delivered strong cash-flow performance, and began to drive synergies between HD Vest and TaxAct while acting to improve the growth trajectory of each. I am particularly encouraged by HD Vest’s performance in the fourth quarter, which shows momentum heading into this year. And while the digital DIY tax market is growing increasingly competitive, we have a solid platform and are embarking on a multi-year plan to re-establish TaxAct as the challenger brand in the space. Big picture, we are beginning 2017 well-positioned to complete the final phase of our multi-stage transformation. With HD Vest and TaxAct as our operational foundation, we will focus on completing the organizational elements of the plan and growing our businesses organically. As we recently announced, we have added incredibly talented leaders to help us take these businesses to the next level. In the beginning of January, we announced the appointment of Sanjay Baskaran as president of TaxAct. Sanjay joins us from Amazon and brings more than 20 years of experience driving growth in technology and financial services businesses. We are confident that he can take that business forward in exciting ways. Working closely with the TaxAct team, Sanjay will leverage his customer-centric focus and digital experience to execute on our growth objectives. While he’s only been a part of the team for a couple of weeks, it’s clear we have the right leader in Sanjay. We also recently announced that Bob Oros was named CEO of HD Vest. Bob brings many years of sales and operational experience and has served in leadership roles at leading brokerage and investment advisory firms, most recently heading up Fidelity’s RIA business. He has a strong track record of successfully recruiting and partnering with independent advisors to drive growth. Bob succeeds Roger Ochs, who will be with the company through the end of March to facilitate a seamless transition. I’m looking forward to Bob joining us at the end of the month, and expect he’ll hit the ground running. As I’ve shared, we intend to build the very best team in the business - Bob and Sanjay are great additions to the team. I’m sure there will be opportunities for our analysts and owners to get to know Sanjay and Bob later this year. With the go-forward operating companies now in place, new leaders to head them up, and clarity on what it takes to win, our teams are energized to deliver for our shareholders and customers in 2017 and beyond. Now, let’s turn to the operational highlights for the quarter. Starting with Wealth Management. Fourth quarter revenue performed ahead of expectations at $83.1 million up slightly compared to the prior year. Segment income was strong at $13.8 million up 13% over the fourth quarter 2015. We capped the year with positive results in all the primary drivers of value. Highlights include, assets under management in fee-based advisory accounts grew to $10.4 billion. The fourth quarter was the strongest in advisory net flows in seven quarters. Much of this growth is a direct result of the efforts of our advisors to anchor their investment strategies in our goals-based planning tool VestVision. We will continue to drive adoption of this tool, as a goals-based plan puts our advisors in the best possible position to service clients and drive asset accumulation. And, for Blucora, these represent attractive annuitized assets. Sweep revenue increased in the fourth quarter as we benefited from rising interest rates, which while not at the level we built into our plan, are an important driver of profit growth. Advisor recruitment remains a top priority as it helps drive long-term value for the firm. We recruited approximately 400 new advisors in 2016. It’s important to point out that our model is different from other independent broker dealers in that we recruit tax professionals and enable them to provide wealth management solutions to our clients. With this approach, new advisors typically take a few years to build their business and begin making meaningful contributions to asset accumulation at HD Vest. This model is a source of advantage for us because it drives stronger loyalty among our advisors and better economics than those enjoyed by typical independent broker dealers. Given that our advisor model is a strong competitive advantage, we continue to explore ways to improve our advisor recruiting and retention program. We are off to a very good start this year, and we are also having strong results with our succession-planning program, which helps retain the client assets of long-tenured advisors and drives value. Among those advisors who retired in 2016, we maintained 47% of their client’s assets through this program, allowing us to keep the assets in-house by transitioning the clients to another HD Vest advisor. So, while advisor count is reduced, larger, and healthier advisor practices are created. We continue to invest in technology to drive growth. As mentioned last quarter, we are upgrading our advisory platform trading technology. In November, we announced that we are partnering with FolioDynamix to provide a cloud-based solution for HD Vest Advisors to manage the entire client lifecycle from proposal generation to account opening and management, including trading and rebalancing, to reporting. This is an important investment in our capabilities, and the new platform will provide our advisors with enhanced insight into client portfolios, and will support the strong growth we continue to see in adoption of for-fee advisory solutions. The new platform will be operational this summer. Even though the DOL rule is under review by the new administration, we are continuing to make investments that will enhance our ability to provide our advisors and their clients with best-of-class wealth management services. We will continue to express our support for an investment fiduciary standard of care that is collaboratively developed by industry participants and our regulators. The majority of our advisors are already able to act as a fiduciary under the investment advisors act. They advise on approximately 80% of our clients' assets under administration, and act as a fiduciary on $10.5 billion of advisory assets. We know that when our advisors are at their best, they can advise clients better than far larger incumbents, because they can provide integrated tax and investment solutions, something these other firms are simply unable to do. Now turning to our financial and operational results for tax preparation. As you know, tax season is underway although at a slower than normal pace, and the market remains increasingly competitive with advertising spend and promotions up significantly thus far. The siren call of free tax filing continues to dominate the marketplace, the large storefronts are more aggressive with their online offers and marketing spending, and there is a new entrant in the digital-do-it-yourself space this year. As we look at our position in the market, we see a real opportunity to differentiate TaxAct as the brand that stands for exceptional value and is known as the most trustworthy. Value. I am pleased to report that TaxAct recently received PC Magazine’s Editor’s Choice for affordable tax preparation software, receiving one of two Editor’s Choice awards. As the magazine noted, if you're looking for an inexpensive service for doing your 2016 taxes, TaxAct is tops. We are proud of this accomplishment and the dedicated TaxAct team that is responsible for it. They don’t intend to rest on their laurels; we are committed to continuously improving the user experience. We help guide customers through their filing process while also offering a far better value than the industry leaders with whom we are compared. To bring that better value in sharp relief, even with pricing actions we have taken this year, today we offer customers as much as a 50% savings versus Turbo Tax and H&R Block. We are working to make this superior value clear to our target customers. Brand and Consumer Targeting. There are many online tax prep solutions out there, but even those that say they are free too often come at a price. Simply put, millions of customers enter the filing process thinking they will file for free and instead are charged at checkout. Along the way, they are charged for add-on services or are inundated with offers. For our part, we have heard loud and clear from a segment of valuable customers that they don’t want to be lured by promises of free filing, only to be charged for things they didn’t expect to have to pay for, or to be bombarded with emails pitching products they don’t need or want. So, at TaxAct, we are focused on acquiring savvy customers who value great products at fair prices and are fed up with the industry’s games. We think transparency is the way to go and that is our pledge to our customers. We just launched a new ad campaign, The System to Beat the System, to highlight these industry practices and put an end to them. This season we have taken steps to be transparent in our messaging and pricing. For example, customers know up front what they will pay to file with TaxAct. Though TaxAct is free for many filers, some pay for specific services. That’s why this year in our advertising we don’t emphasize free offers in our marketing. We are clear and transparent about the pricing so that customers know right from the start what they will pay for our service. Our price lock guarantee ensures that customers pay the price listed on the product at the time they start their return, not when they finish their return. TaxAct is the only major online provider that offers a price lock guarantee. We do not charge anyone for phone support. Customers can contact TaxAct’s team of trained tax professionals via phone for tax and technical help at no additional charge. This is an added value not included in free product from competitors. For the first time, all customers can access up to three years of prior TaxAct online returns for no additional charge. We are committed to being the brand that delivers transparency, with a focus on paid filers. What leads us to be confident that this is the right path, in stark contrast to all the other players? First, a pivot toward paid filers creates superior economic returns and, as a result, we’re willing to sacrifice total units in the form of fewer free filers; Second, there is clear consumer demand for a transparent approach; and, third, we believe transparency leads to trust and trust enables us to add more value and help more customers manage their financial well being, beyond the once-a-year transactional relationship that most tax-prep firms have with their customers. A manifestation of helping more customers manage their financial well-being is our recent launch of BluVest, an integrated platform that offers TaxAct customers the option to receive affordable and objective investment advice. The service is designed to provide our customers with a current year tax benefit by investing in retirement accounts during the tax return filing process, and fund their investments directly with their tax refund into a Robo type offering. While BluVest is not expected to materially impact our financial results this year, offering financial solutions that are relevant to our customers adds value and begins to build a year-round relationship between the customer and the TaxAct brand. And it’s a great example of the synergy value between our two units. As you know, the IRS opened four days later than last year. As a result, the industry overall is off to a slow start this year across all tax preparation methods. Instead of the typical early season peak, we are seeing that peak spread out over a longer period. This change in the timing of consumers filing returns challenges comparisons to prior seasons. However, we continue to believe the digital-do-it-yourself category will demonstrate healthy growth again this year, and we expect to benefit from that growth over time. Eric will give you additional color on how we are trending season-to-date compared to the market. Looking ahead. One of our shareholders commented that we are undertaking the largest transformation he’s seen in any of his portfolio companies. It is a big undertaking, and we have a busy 2017 ahead as we complete the final stages of our transformation. We will finalize our go-forward leadership team, re-build the corporate team in Irving, and execute our plans in each business. We will also develop a clear path to capturing the synergy value we know exists. Some bumps in the road are to be expected, but we are committed to taking the right steps to build shareholder value over time. With that, I will turn it over to Eric for more details on the financials.

Thanks John. We have a lot to cover today including fourth quarter and full year 2016 results, an update of our tax season expectations and first quarter 2017 outlook. Let’s start with a quick summary of our fourth quarter results which finished ahead of our expectations: Consolidated revenue of $86.8 million, adjusted EBITDA of $2.8 million, Non-GAAP net loss of $7.5 million or an $0.18 loss per share, and GAAP net loss of $19.3 million or a $0.46 loss per share, which includes a restructuring charge of $3.9 million or a $0.09 loss per share and losses from discontinued operations of $5.1 million or a $0.12 loss per share. This translates to the following full year results and pro forma year on year growth. Consolidated revenue of $455.9 million, up 4%, adjusted EBITDA of $94.2 million, up 15% non-GAAP net income of $45.1 million, up 22% or $1.06 per diluted share which is up 20%, and GAAP net loss of $65.2 million or $1.57 loss per share, which again includes a restructuring charge of $3.9 million or a $0.09 loss per share and losses from discontinued operations of $63.1 million or a $1.48 loss per share. Turning to the balance sheet, we have cash, cash equivalents and short-term investments of $58.8 million. During the quarter, we paid down $38 million in debt which brings our total debt pay down for the year to $172 million. We exit the year with net debt of $377.2 million and a net leverage ratio of 4x, quite a change from the greater than 6x net leverage we entered the year with and highlight our execution toward our stated goal of 3x net leverage. To this end, we expect to utilize at least $30 million in cash from operations to pay down term loan B debt in the first quarter 2017. Shifting to segment performance, beginning with Wealth Management. HD Vest full year revenue was $316.5 million down 1% versus prior year on a pro forma basis, and segment income was $46.3 million and up about 8%. I think the best way to sum up this year is we started out with some challenges given market conditions including an S&P 500 52-week low in February, coupled with typical integration challenges that are to be expected with a significant acquisition. As we entered the second half of the year we began to build momentum boosted by the market. As a reminder, a positive market helps us in a couple ways. First, we are about 50% correlated to the S&P 500 so upward movement grows our AUA and AUM benefiting fee-based and trailer revenue and second, we typically see increased inflows in times of S&P 500 growth. Additionally, we benefit in an increasing interest rates environment to the tune of approximately $2 million in annualized sweep revenue and segment income for every 25 basis point increase. For the fourth quarter, HD Vest revenue was $83 million, up 1% versus prior year and above the high-end of our guidance expectations for the quarter driven by other revenue which resulted in a gross margin increase of 6%. Fourth quarter segment income was $13.8 million, up 13% versus prior year pro forma and again ahead of our expectations. The beat to expectations for segment income was driven by lower than expected costs and gross margin driven by revenue out performance. The highlight in the quarter was net fee-based flows of $152 million. This came on the heels of the third quarter net fee-based flows of $132 million; it certainly feels like we have good momentum entering 2017. Total fee-based AUM as of the year-end was $10.4 billion, up 7% year-on-year and 2% sequentially and represents 26.9% of total AUA which is up 40 basis points versus last year. We are pleased to see a continued mix shift towards fee-based AUM. We exit the year with AUA of $38.7 billion, up 6% year-on-year and flat sequentially. Turning to the first quarter 2017 outlook. We expect revenue between $80 million and $82.5 million and segment income of $11 million to $12 million or a segment margin range of 13.8% to 14.5%. Transitioning to Tax Preparation. TaxAct full year revenue was $139.4 million up 18% versus prior year and segment income was $66.9 million up 17% year-on-year. Simply stated, last year was a great year financially for TaxAct in the face of a significant pivot of our pricing and packaging model. And as we shared, we leaned toward segment income given our focus on paying down debt. For the fourth quarter, TaxAct revenue was $3.8 million, up 31% versus prior year and segment loss was $6.1 million which is up 35% over prior year as our investment leading into tax season was increased, primarily in marketing, and a bit more back end loaded versus the prior year. Shifting to first half and first quarter 2017 outlook let me echo John’s comments. The season is off to a very slow start. DIY efiles are off 21% through February 3 per the IRS weekly filing statistics and while the season was delayed for four days there seems to be other factors at play such as the PATH act which requires refunds involving the Earned Income Tax Credit and Additional Child Tax Credit be held until the latter part of February. It is also worth noting that we don’t believe or see any evidence that the slow start is suggesting a shift toward tax professionals, we expect DIY to continue to grow at a rate that outpaces overall filer growth. For the same period, our efiles are down approximately 34% versus last year which is not too surprising that we are lagging the market due to our focus on paid units that typically file later in the season. We did make up some ground on units in the second week based on the IRS statistics and remain hopeful we can continue to do so as the season progresses. Even with the challenges presented by the slow unit start we are confident that we will meet or exceed the high-end of our first half revenue outlook which called for 8% to 10% revenue growth versus the first half 2016. Our confidence is bolstered in large part by early season pricing action. This translates to a first half 2017 revenue outlook in the range of $144 million to $148.0 million. Additionally, we believe on an absolute dollar basis we will likely come in toward the low-end of our first half 2017 segment income outlook of $81.5 million to $84.5 million. This is largely driven by decreased marketing efficiency attributable to the season’s slow start. In short, our early dollars have been less efficient and we expect to need to deploy additional dollars through February. Further, our first half 2017 outlook reflects investments to re-establish TaxAct as the challenger brand in the space in order to strengthen our competitive position. We are proceeding on these investments and testing a lot this season. Additionally, we may decide to accelerate certain investments as we exit the tax season. More to come on that in future calls as Sanjay and the team assess opportunities, but the message here is we are not going to pull back on investment to offset modest short-term margin compression. As far as first quarter outlook, we expect approximately 67% of first half revenue to hit in first quarter which translates to a range of $96.3 million to $99 million. We expect segment income of $48 million to $50 million or a segment margin range of 49.8% to 50.5%. Let’s close out 2016 with unallocated corporate operating expense. For the full year, unallocated corporate operating expense came in at $19 million or up 7% versus prior year on a pro forma basis and included approximately $3.5 million in non-recurring costs. Fourth quarter was $4.9 million of which approximately $0.9 million were non-recurring. As a reminder non-recurring costs represent costs associated with our company’s strategic transformation, which includes the integration of HD Vest and the divesture of non-core assets, as well as costs associated with leadership transitions and the cost associated with move of our corporate headquarters that did not qualify for classification within restructuring. Excluding non-recurring costs and annualizing the fourth quarter we are at a run rate of $16 million. So making good progress against our stated objective to materially reduce our unallocated corporate operating expense. In previous calls we have stated our goal is to achieve $12 million in expenses annually, but as we have gone through the budget process as well as thought through our operating model, we expect that we will settle in the $13 million to $13.5 million range, which still represents mid-to-high 20% reduction when compared to 2015 pro forma. Obviously, with the headquarters move to Irving, Texas and leadership change at HD Vest, we will have some significant non-recurring costs in 2017, that will primarily hit in the first half of the year. As such, we expect first quarter unallocated corporate operating expense of $8 million to $7.5 million of which approximately $4 million is non-recurring and includes $1.6 million associated with the HD Vest leadership transition. With that let’s turn to the first quarter 2017 consolidated outlook. For the first quarter, we expect revenue between $176.3 million and $181.5 million, adjusted EBITDA between $51 million and $54.5 million, non-GAAP net income of $40.2 million to $43.9 million or a $0.90 to $0.98 per diluted share and GAAP income from continuing operations of $14.5 million to $15.2 million or $0.32 to $0.34 per diluted share. As a reminder, GAAP income from continuing operations outlook includes a first quarter restructuring charge estimate of approximately $0.6 million and excludes any impact to tax expense for discrete items. Before I turn the call back over to John, let me comment on our guidance approach for 2017. At this time, we are not providing full year outlook. This is primarily driven by the uncertainty that still remains around the DOL rule. In addition, with the new leadership at both of our business units, we are going to provide these leaders an opportunity to come in and assess their respective organizations and opportunities to drive long-term value. This may involve some added investments in the second half. You can expect us to provide additional clarity over the next couple earnings calls. However, it’s important to note we have provided first half 2017 outlook for TaxAct which represents the lion’s share of the segment’s full year earnings. Let me emphasize this does not change our view that these businesses will continue to grow top-line consistently in the mid to upper single digits and may grow faster depending on market conditions and/or the success of our synergy growth initiates. John?

Before we open for questions, I want to thank our employees for the strong performance this quarter. I am proud of our achievements, we beat fourth quarter expectations, are entering the year with increased momentum at HD Vest, and despite a slow start to the tax season we are reiterating our guidance. With that I'll open it up to your questions.

[Operator Instructions] Our first question comes from the line of Dan Kurnos from The Benchmark Company.

Great. Thanks. Good morning. Congrats on the solid quarter and the outlook here. Let's start John with HD Vest. And so I'll surprise you asking figures start with tax, you kind of talked historically about improving the advisor conversion process efficiency. Can you give us any update there and just how we should think about the general pace or tenor of advisor growth this year?

Dan, good morning. And thank you so much for the question, yes, as we shared a little bit in a prior call, we are looking to retool the advisor recruiting process. We see a ton of opportunities there. The pipeline is actually quite healthy hitting out of the gate this year. But look what we are trying to accomplish are some very basic things. First is, want to make sure that we are deploying our resources against advisor prospects, they are highest potential come in and not only get licenses get up and running but also become really strong producers for us over time. A lot of sort of degradation if you will in total advisor count that we sometimes seen over the past couple of years been associated to people really just not getting lift off. And so we are picking apart the process, we are looking to do things like add some incremental sort of screening and what not upfront so that we can get a better sense of those they can come in and go through the process, get trained up, and again become a strong producing advisor over time. In the past years, as you know as well, the DOL has been some headwinds for us around part of our recruiting efforts. Our folks that have already been licensed have largely stayed in sideline waiting to see what's going to happen to DOL. We feel like that to some degree is played out but now with the additional uncertainty that maybe something cost backup into the situation we face this year. The big picture as far as advisor recruiting process itself, idea is far sharper lens and the type of advisors that we recruit. So we get the right type of advisor who comes and gets up that learning curve far more quickly than on average in the past. As you know, this is how we grow right. We like the fact we grow through new advisors to give some really sharp economic advantages versus other independent broker dealers. But efforts and pressures in a different spot which is we got to do better job of recruiting getting people up to speed.

Great. That's helpful. And then since you specifically mentions VestVision in your prepared remarks, I was wondering if you would be willing to at least directionally give us a sense of what portion of assets are in that product to just how you feel about the quality of the product overall and how you might expand on your goal based tools?

So couple things on VestVision for the group calling in here is the way we put to our goals -- goals based planning process. We placed a lot of emphasis on this process over the past couple of years and even more so in the last -- half of last year. I think that explains large part of the uptick we are seeing at for -fee advisory solutions. We see that the adoption by the way is up both in terms of the number of advisors are doing more than just one plan because we have to do couple to get into habit around using a planning process. But in terms of total plans, we are delighted that we are up a low double digit quarter-on-quarter in terms of the number of plans that we done. And it's a crucial we keep on building that momentum because it's roadway create a strategic relation with the client, it gets a client focus on right spot i.e. what are goals, it better enables the advisor to meet those goals with the client and it also tends to lead towards asset accumulation in great assets under management. As far as the percentage of our asset that have plan, we don't share that but I got to tell you it's more white space you get than it's people have a plans what that means there is a lot of upside still to drive and play out in terms of plan adoption.

Great. And then last one on HD Vest just John on DOL, given a regulatory uncertainties you called out, with the understanding that you are still making improvements to the platform, have you changed some of the product offer considerations or has the overall way you are approaching to potential dealer impact change?

Well, in terms of the basic approach there really just a couple of swim lanes and we've been pursuing. You mentioned the technology front and the main thing here is recognizing that the for-fee advisory business being so crucial to us strategic and just so powerful economically to the firm also great for clients and advisors as we shared we are going to continue to make those investments from the advisory trading platform is the fully dynamic platform. Relative to product, we continue to do work around what should the offering look like over time as you know there is a two phase adoption of deal, well if does remain intact, the industry has a part of it's around for example mutual fund, creating new share class that could be a lot more DOL friendly. And look there has been some positive momentum that's happened there based on the conventional wisdom that there will be some form of delay in the DOL rule. But for us, we are proceeding where we need to, to be ready at those two phases, our view is that while a delay is likely, we also believe that down the road there will be some form and we support the some form of standard of care. And as a consequences want to make sure we see through the right investments to be ready for an eventuality and at the end of that process when we look back and I don't know three or four years, I think what we are going to see is lot more consumers having chosen to be in for- fee advisory solutions that's terrific. Everybody wins there. Now also see some consolidation in industry depending on what form an eventual rule take place. And we feel like we'll be well positioned to participate in that eventual consolidation positively as well.

All right. So let's switch over to the fun topic is your -- so on tax just let's just talk about the big issue or filer growth versus revenue growth. I know you guys talked about taking price this year. You still got a 50% positive delta from a competitive perspective. Gain grounds in units as February progress as I am sure contributed to the confidence in the effective guidance raise. You also confirmed your long term mid to high single digit revenue guidance. So just if you can dig any deeper down into the pacing of unit versus pricing balance longer term and any other insights you could give us maybe like taking share from competitor or funnels particularly the aggressive new free channel that would be helpful.

So let me start Dan with some thoughts there. I'll turn it over to Eric for some additional, I am quite sure. As we've shared we are very resolutely focused on paid filers and we are focused therefore the reasons that we discussed so I wont' repeat those. It does make share comparison a little more difficult right because what's going to be published and what not is total share. We are after paid filers given our focus on monetize both clients. We are also focused on segment of the market that's interested in high value services, interested in quality and are totally disinterested in getting sort of stuck into a process only to find out as they finished that they turn what they probably is going to be zero dollar cost into something that's $50, $60, $80 or over $100. Our research tells us that there is a substantial market that has become quite jaded with the process of filing taxes. There is a group that is would say things like, well, we know there is no free lunch and I sort of kick myself to getting duped one more time as I went to a different provider thinking I pay nothing. So we are focused there and look, it's changing your competitive position is not a two week process. It's not a first peak process; it's a couple of year process. But we are taking steps necessary we think to move us in that position. To give more specific to overall price and units, look, over time we realized that to grow value around the TaxAct business we got to do both. Specifically first over time, yes, we got to be growing the right type of paid filers but that's not tricking people into paying for something they don't need. We want the right type of paid filers and being a brand that's worthy of people's trust will allow us then to extend into other services like the VestVision. The second thing is the pricing lever. Yes, we did pull the pricing lever again this year. We've been pretty aggressive on a relative basis compared to our own price point over the past couple of years. Is there further room there? I am sure is the heart of your question. And the answer is, yes, there is room. When you look at the percentages right. When you are even now 50 maybe in few days that we believe will probably 60% less in a number of different spots in its business, there still is room. Is it the same type of levers to revenue growth that we had last year and we'll probably end up with this year? No, it begins to diminish. But there still a room there and interestingly from a consumer behavior point of view, if you look at brand A and brand B, brand B is saying hey let's go to those guys. You don't give up anything to condo us but you are 80% less or a number like that it stretches credibility and people actually believe you are probably low quality. And so it's important actually to continue narrow that gap to a point where people look at and say, you know what that's a good value but I am probably going to get a good experience. As we noted, we are proud about the product, independent observers like PC Mag with say it's a great experience. So there is a room there. There is less than it has been last couple of years. We got to be really clear that while existing user is definitely are not happy when prices go up. We are also focused on growing new users over time. So let me get that sort of price value balance built into our brand.

Yes. I would add echo, obviously echo what John saying. I mean I think some of the other things just to keep in mind is we are off to a very historically slow start and certainly it was helpful to see IRA statistics so we could adjust in when you are in that early part of season when you are just looking at your numbers and how you are executing against your plan, having a good market contacts is very important and so that did play out a little bit in some market inefficiency in the beginning because as I said the start was pretty historically low. John hit on the right point. We are going to have balance out volume growth over time with ARPU increases. In fact, ARPU increase over time we like to see shift more towards value added services as well as people finding more value in our products and upgrading to products that better serve them. So that's really we are focused. I mean maybe to put in a little bit into context of -- and I am not going get into too much detail here Dan because it's early in the season and we are pretty much in uncharted ground as far as how late the season is started but where we are seeing a lot of the softness is where we expect it to. It's a new free folks and we deemphasize that this year. And so with that I'd also tell you is we are doing a little bit better in areas like paid mix thus far versus our internal projection. So any time you adopt new strategy and you head down this road, obviously, you hope it plays out to the best you can, we went into it, have entered into a pretty challenging slow start season. But I don't think we are too surprised that we have the ability to hit our financial projections and very early one and can balance volume growth over time to get to those right filers that are actually going to see the value the TaxAct brings.

Okay. Great. I guess I'll ask one more and kind of jump back into queue. So just a follow up on that last question. You kind of touched on this. We have started to see some more visible advertising for TaxAct which you did call out in your prepared remarks. So can you just maybe talk about which channels you are seeing success in and any goals you have in terms of achieving a certain level of brand awareness aided or otherwise? And do you think that some of the prior spend which you highlighted is less effective due to the slow start to the tax season could eventually monetized or given the competitive landscape is it really about remaining top of mind at exactly the right time when a consumer decide to proceed with filing?

Thanks, Dan. Definitely a lot in that question. So let me know if Eric and I don't cover all the aspects of it. So as far as the effectiveness of getting channels which clearly you know the opportunities are to understand how the channels work together. And drive folks into the side and experience. We've made a major step forward in the analytics we have around understanding the effectiveness of channel mix. It's not where we all wanted but it certainly did leap up from last year. And so we are seeing good ROI in nearly every channel that we have been deploying this year. We are digging deep as the first peak comes down to see what sort of fine tuning we might continue to do. We've also improved on our test and learn capability. So we've done a lot of testing around even price points around messaging, around channels. And I think we are going to enter the second peak pretty well armed with an understanding of how to continue to deploy marketing dollars most effectively as you know unaided awareness in offer TaxAct and some of the players in this space are pretty low. Brand loyalty is also quite low. -- Tax churn about 5 million filers great is there, more than 5 million filers every year. And so this in pretty big brand opportunity. So how do we address that being the third largest player? Well, one thing we do is looked to establish at far sharper differentiated message so that when we are talking about the brand people sit and notice. You probably seen in the marketing and the PR. Second thing is we need to get good really good and are getting far better at optimizing channel mix. And driving to complete one someone is in the process, we find that the transparency message by the way that we've gone to on the home page and the lining page actually working far better than would start from a free message then starting dupe people into paying more later which has been the industry practice. So that process element is working. We also have an opportunity on top of those efforts to be more aggressive in PR. We tended to do those sorts of things such things so get others carrying some weight for us and we continue to focus on trying improves in client loyalty are measured by MTS. So we get a strong referral business. So there is a number of tactics we are deploying to deal with the fact that, hey as a number three player you are going to have low awareness than others. There is one more, I don’t want to telegraph too much into future strategy but it's really playing from words that we share previously that we are looking to try to extend the tax relationship from being sort of won and done once a year event into more of an ongoing relationship. That will give us a leg up as we enter into the next year. If you got a brand that you interact with exactly one time and you forget about 451.5 half weeks, now we are starting from zero from a brand point of view and so we want to pull through in more engaged relationship across the year as we've dealing with some of the brand challenges that really anybody faces in the category but we in particular face as being relatively small player. Does that --

Yes. Let me just add one thing to your question on marketing efficiency. I think that one of the key things that we are always looking at is who's started but not finished and we kind of prefer that as our backlog. And always looking at the quality of our backlog. And to your marketing efficiency question I am not going to get into the channels what we are seeing it but I'll tell you I think our backlog is healthier at this point than it was last year. So I do think that there will be some throughput and I think it's on the paid side that will finish a little later in the season and improve some of the market -- some of that marketing inefficiency will actually call through to be efficient marketing spend later on the season.

Thank you. [Operator Instructions] I do have question from line of Alex Paris from Barrington Research.

Good morning. I have a -- first of all thank you for the thorough overview. I have a few specifics essentially follow ups. Starting with the balance sheet, obviously you produced that nicely from the peak a year ago, you are roughly at if heard correctly roughly 4x net debt to EBITDA. Any changes to your goal for the balance sheet? Leverage ratio and the timing of that. And then once you get there what are you priorities for capital beyond that point? I think it was 3.02x.

Alex, this is Eric. So absolutely 3x is our target. I think we'll be in shouting distance of that, mid year I think we've had some things when we originally gave that estimate that we thought it would be 3x mid year that have changed and largely it's just transformational in nature. We are moving the headquarter that's going to weigh on EBITDA for the things you don't quality for restructuring but I think we'll be in shouting distance of 3x of mid year. And that will be the time that we start to look at other capital allocation opportunities. With that being said, I think debt will continue to be the priority in that that we can continue to pay down and for a couple of reasons. One, 3x net is still a healthy whatever its ratio or maybe more than healthy leverage ratio for a small cap company and so like to see that maybe get down another turnover time. So it remain priority but with that being said I think what we've done over this period of time is executed and shown that the cash flow ability of the business, in fact unlevered free cash flow for this year is $83 million and it shows that can handle like that and you couple that on top of the fact that we are not a cash tax payer with our NOL, at that time, 3x net we can't look at other things. And if the right M&A opportunity, it is in line with our strategy for TaxAct and HD Vest and how we are trying to synergize those businesses we'll take -- you'll take more of an active look at those types of things. But I guess what the main takeaway is that we will continue to be part -- which pay down will continue to be a priority for us at that time. And then lastly the other thing I think just to keep in the back, we can always keep in back of our mind is just our interest carry and so that those dollars are things that stand in front of utilization of our NOL. So we are always cognizant of that and want to take every opportunity to lessen that interest carry where we can. And so you can expect at this time we are continuing to look at refinancing opportunities and looking for opportunities to get that interest carried down as well.

Great. Two related questions. What's the NOL balance at the end of 2016?

$500 million.

All right. And then what are your thoughts with regard to returning cash to shareholders at some point when you achieve your goals? Dividends, share repurchases, at one time you had talked about a philosophy in that regard. I am wondering if we have any updates there.

Yes. I think once we get to that 3x net we'll -- that will be one of the items we put on the table. I think given where we are what would make the most sense is stock repurchases but obviously we'll look at all the options and what we think ultimately is best for shareholders given the current strategy we have at that time. I would say that if we go down that path, in the past we tend to be opportunistic in those buybacks. We also look at opportunity to may be done something little more structured so shareholders will have more visibility but yes that certainly will be on the table. More so on the table when we get to that 3x net. But I still think that we are lean towards that is the prioritization initially, check pay down that is.

Great. And then switching subjects. Guidance, we have guidance for first quarter. Your explanation for not giving 2017 guidance is reasonable. And you have new leaders, they ought to have a chance to look at the business and make their own budgets but also that can be concerning to investors not having that full year guidance. What could revenues and or revenues are little bit easier I think but what could earnings be given investment plan and things like that. I know you addressed it but when should we expect more information with regard to full year expectations?

Yes, look, obviously Sanjay has been on the job for about three weeks now and Bob will be soon on the job starting late February. And so I think we can probably give some directional color where it heads at next call. But and then really try to lock it down in our second quarter call. Look, this is more of how much cost that we think we need to invest and but we are always going to be cognizant of what the return period is on that investment. And we are not going -- I don't think you should read these comments, we are looking to change our margin profile materially but we also don't want to have walking if you like your handcuff. So I think in the past we've shown pretty good discipline around our margin profiles of our business. I think you should continue to believe that we are going to show discipline. But with that being said, we also need to give these guys some room to run and really definitive clarity at the end of second quarter but I think we should be able to give additional color at the end of the first quarter call.

That's right. I just want to add it, certainly with everything Eric said I just want to amplify that we are disciplined. It's one of the things that we committed to and recommitted to as a leadership team back in the first call I was on. We are focused on driving shareholder value. We know that there has to happen consistently over time. And discipline will continue to characterize decisions that we make and there is quite really no sense of hey here is blank check go and figure what you want. But rather we do want to make sure these guys feel like Eric mentioned, they can bring some fresh eyes in this businesses. They are going to see some opportunities to do some things that we probably haven't seen before. But the whole process there is going to be on discipline and creating value for shareholders. No doubt about it.

May be one last point on that Alex. Just give a little bit on the HD Vest side. I mean I think also the encouraging thing is we are walking into the year that does for the market has been a tailwind, the other thing that we could get is another interest rate raise, we are certainly not banking on it but things like that provide opportunity for reinvestment and I think that's another point as we think about coming back as we've more clarity on the market. I think those reinvestments become easier to be little wraps your head around is before getting that market tailwind and putting that back into the business whether it be in HD Vest or in TaxAct.

Great. I really appreciate that color. One last clarifying question. I don't know if you want to answer it. But I agree shareholder value is driven by consistency, stock prices are highly core related to earnings. Given the latitude that you are going to provide your new leaders within the divisions, are you at a on a consolidated business level committed to full year revenue and adjusted earnings and adjusted EPS growth?

Let me make sure I understand the question. So is from an internal projection standpoint?

Yes, eventually, I am asking for guidance when you chose not to give guidance.

We are dancing, all right.

That's why I said you might not answer it but obviously there is some requirement at or opportunity for investment in both sides of the business. You just reported a $1.06 at non-GAAP earnings per share. I understand the need to not want to give specific guidance but given the latitude you expect to give to these new leaders do you still expect to have growth without asking for specific numbers?

The non-GAAP level, absolutely, and I think a lot of that goes into as well and we think about capital allocation which is another lever or zip we can execute on a few things there to drive some opportunity for cash back in the business. But, yes, look this isn't a signal that we don't believe we are growing this year. Absolutely not, it's more of a -- we may see some modest compression in our margins to take advantage of investment. But I don't think you should read the comments to believe that on the bottom line that we are going to sacrifice growth this year.

Thank you. And we have a follow up question from the line of Dan Kurnos from The Benchmark Company.

Thanks. Just quickly just one more on tax, John, is there anyway you can dig a quick it is probably too early to ask this but if you dig a little bit deeper than just your prepared remarks and any initial learnings from Robo and how you think the entry of Credit Karma into free space could disrupt the overall filing funnel? And then for either of you but probably maybe for Eric just on the corporate unallocated, I would have thought you would have gotten maybe benefits from moving Seattle to Dallas and I know if you just being conservative right now but if you could just sort of walk us through the puts and takes as you've kind of work through the budgeting process and sort of coming up with any number that would be helpful. Thanks.

Dan thanks for questions there. So in terms of -- I just go in order that is on Robo, it is so early, I mean we literally open their first account within the past couple of days as the process is gotten up and running on the website. The idea though is it looks compelling right. So the simplest use case around someone doesn't have an IRA we know that because we got the information that given us consent to use that information. They are getting a refund and in just few clicks you can set up Robo account and ultimately have that refund funded directly into that account. In this we feel like it's timely because we are talking to people when they are worried about their money. It's relevant because we are making a specific offer to somebody, and the case I mentioned is a good example, it's easy and it's coming from someone that they trust. So and all of those elements are in place like in most offerings like this the key is probably going to be end being around making that user experience as a simplify as streamline as possible. And we are working on that but it's quite early literally days before we had the days ago been the first account opening. And we've seen a lot of interest on the site thought. Lot of interest, people kicking the tire, getting blueprint and financial assessment done and so we'll -- well, I am sure we'll have some work to do around driving adoption but the pipes are working if you will and we are getting some good initial interest. On Credit Karma and also early to tell right given the nature of their approach and launch, some observers are raising questions around tax expertise that sort of support that they can provide. Those sort of things that will distract your attention to some recent reviews on that .Longer term, I think the big question is to what degree are consumers going to be willing to have their data used by parties that they don't know to be hawked credit cards and key locks and who knows what all. Certainly will there be some people interested in that? Yes, there will be. But our research tell us that there is whole card ray, whole large multimillion filer segment that's going to have complete disinterest in opening up one self up to getting pitched offer. So but we view them as a competitive space but it's from a strategic point of view they are one more player who is coming in to the already very crowded free space and simply put that's not where we are focused, we are focused on acquiring those salary customers we refer to earlier. Those are really great products at fair prices and kind of fed up with some of the industry games of which Credit Karma is one more version.

And then Dan closing on a corporate OpEx, so look I try to give as much color as I could because I know it's we are trying to turn that number down. So let me make just to throw some numbers out just to make sure that folks understand we are going in the right direction here. Coming out of 2015 where we were $17 million plus, exiting this year at call it just around $16 million run rate if you take the fourth quarter and back off the non-recurring stuff there. Also in my last call I did call out that well the move long term will save us dollars, in the short term there will be cost and some cost that won't qualify for restructuring and we guided those $3 million to $4 million in the first half of the year. And I would say look right now we are looking into coming in towards the lower end of that range which is good. And then lastly I think and I mentioned in the comments is we had a transition in leadership at HD Vest which actually there was some additional dollars that weren't planned for when I talked at the third quarter which is really a wane on that and call it million six that wasn't expected going into the year. So kind of look at this on a recurring and non-recurring basis and I get we have a lot of non-recurring cost throughout 2016 and even back in 2015 getting the HD Vest done. There was a significant lift in doing that as well. But I do think when we get through the first half of this year, and we do have our move done and we got all the employee transition and we got all the butts and seats if you will. There is opportunity to get down to the $13.5 million that I discussed and to put that in context, when we started we were targeting 30% reduction I think now given through the transformation working with John to understand the operating model that he needs in place to be successful. We are settling in and around $13 million - $13.5 million which is a 20% reduction and I think execution wise hitting the mark on where we wanted to be is just the transition is -- look it's taken some time and certainly the headquarter move was something that was contemplated when we thought about it but timing is everything and that decision was made in the fourth quarter last year. And so we are going to have some cost that then come through 2017. But I think folks will get a real clear picture and you'll start to feel or see the scale into 2018 once we get through the first half of this year.

Okay. I'll dig a little bit more about it offline, I don't care about the non-recurring stuff. I guess it's just more of a trade off of Seattle for Dallas and the underlying run rate. I know the call has run long which is probably my fault but if I could just ask one last question here.

Hey, Dan. Just one thing on that I mean and we talked about it in the third quarter. I don't think you can chalk up everything here to hard cost benefit. There are some hard task benefits but there are many soft cost benefits of John having his team and the operating model that he wants to run. And really turning the corporate team into something that's a bit-- not say we weren't valuable to the business in the past but make us more valuable to the business and you should see that in execution in the business units as well. So I understand that you want to see the hard cost savings and there is some there but there is also an important soft cost element.

Look, I mean Eric I think at the end of the day everybody understand that John has done a great job creating efficiencies both revenue and cost throughout the business segment and it's coming through from an execution perspective. I guess that was embedded in sort of getting to that 12 number that we thought initially. I was just trying to understand if there is any leeway on the hard cost just from the delta and the location shift. That's all. So I hear you on that and then just so let me just ask one last question because it's just a follow up on something Alex kind of pointed out. I mean look you guys -- your low end of guidance clearly points to growth. I don't think that's an issue. The math from tax alone tells you that you are going to grow this year from both the top and bottom line perspective given how that the contribution just the bottom line unless HD Vest blows out. So let me ask you, John, clearly you guys have a very strong ROI focus. So maybe the question I ask would be kind of what are your ROI expectation on these new investments in terms of period and payback?

Thanks, Dan. So look I think you have to look at investment in any business over a portfolio and over a timeframe. And you don't want to have is sense of diversification where a number of your investments can have relatively quick payback. Both Bob, myself, Sanjay, Eric, we see those opportunities to create some of the benefit from what those call low hanging fruit right. We see that in a tax business. This is my first full season going through this business and we've already identified at least 10 things that we view as low hanging fruit ideas that don't take a ton of investment but do take a bit of investment to better capitalize on. Eric hinted at one around the backlog where we can be far systematic and how we touch those potential filers who are piling up in a backlog. There is a little bit of capability we need to go get there. Search engine optimization, we do pretty good job with that today. There is some serious volume in doing a better job. I just mentioned those as examples. But the way I look at things is look every investment needs to have a solid ROI. We can look at and say within a band of risk and execution we feel good that it is a good investment but we'll range those over investments to take more than one year versus those that can be in year accretive to results and make sure we get a good mix of those. Does that help on the question?

Yes, I guess just the pressure on that little bit as you think about your investment in the back half of the year when they come onboard, I am not trying to speak for the new segment has another great filers by the way, just how you think about kind of the balance -- do you have more low hanging fruit opportunities near term or is it really just going to be hey I can go after this now but I am also going to 50:50, here is low hanging fruit and I am going to after these long term initiatives which is going to depress margins, now I get paid back in 36 months something like that.

Okay. The leaning will be far more toward low hanging fruit and let say TaxAct right, what are the things that we need to have in place so that we hit tax year 2017 with the pretty big leap forward in terms of competitive position. So in the TaxAct business again just to illustrate if we are talking to you guys in three months or six months around here, hey, we are doing some things to reposition of business and they may get far more competitive and by the way we all know in this call that's off a very, very strong economic phase by the way. The vast majority of those going to be around setting up tax year 2017 versus some plans around tax year 2019-20-21 something like that.

Thank you. And that concludes our question-and-answer session for today. I'd like to turn things back over to John for any closing comments.

Hey, thanks, thank you there and thanks for all the questions. Really appreciate it. I just want to close by expressing my gratitude to our shareholders, clients, customers, advisors and employees. We feel extremely deep accountability to each of you. And team and I are focused on and quite optimistic about by the way driving to position the company for long-term growth which will benefit each of our constituent. Again thanks so much and look forward to the next call.

Thank you, ladies and gentlemen. Thank you for your participation in today's conference. This does conclude the program. And you may now disconnect. Everyone have a good day.