Bill Michalek – Vice President-Investor Relations John Clendening – Chief Executive Officer Eric Emans – Chief Financial Officer

Dan Kurnos – Benchmark Company Brad Berning – Craig-Hallum

Good day, ladies and gentlemen, and welcome to the Blucora’s Second Quarter 2017 Earnings Conference Call. [Operator Instructions] As a reminder, today’s conference call is being recorded. I would now like to turn the conference over to Bill Michalek, Vice President, Investor Relations. Please go ahead.

Thank you, and welcome, everyone, to Blucora’s second quarter 2017 earnings conference call. By now, you should have had the opportunity to review a copy of our earnings release, supplemental information and prepared remarks. If you have not reviewed these documents, all three are available on the investor relations section of our website at blucora.com. I’m joined today by John Clendening, Chief Executive Officer; Eric Emans, Chief Financial Officer. In a moment, we’ll hear brief remarks from both of them, followed by Q&A. 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 expectation. Please refer to our press release and our other SEC filings, including our Forms 10-K, 10-Q and other reports, for more information on the specific risk factors. And 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 now hand it over to John.

Thanks Bill, and good morning, everyone. We continued our positive momentum in the second quarter, strengthening Blucora and improving our positioning across both businesses. Total Blucora revenue grew 16% year-over-year, with adjusted EBITDA growing faster at 20%, and non-GAAP EPS improving by 27%. Strong results against any peer group. About 18 months ago, following the acquisition of HD Vest, we laid out a goal to achieve a 3x net leverage ratio, down from 6.3x at the time. I’m pleased to report that we’ve already exceeded that goal, ending the quarter at 2.7x. During the quarter, we reduced debt by $35 million, in addition to simplifying our capital structure with a new lower-cost credit facility replacing our old facility and convertible notes. This new structure is expected to reduce cash interest expense by about $3.4 million per year. We also added two new independent directors in Georganne Proctor, the former Chief Financial Officer of TIAA-CREF; and Steven Aldrich, Chief Product Officer at GoDaddy, Inc., further strengthening our board. At the business unit level, turning first to Wealth Management. HD Vest continued the momentum of the past few quarters, with revenue up 12% year-over-year and segment income up 25% year-over-year. Following the stock market volatility and post-acquisition transition of the year-ago quarter, HD Vest has continued to improve on important growth metrics. Assets under administration, or AUA, increased 11% year-over-year to $41.4 billion, setting a new record. Fee-based assets under management, or AUM, were up 18% year-over-year to $11.6 billion, also a new record. Net inflows into AUM were $222 million in Q2 and AUM as a percent of AUA increased to 28%, up 150 basis points from the year-ago quarter and also hitting a high-water mark. While the business has strong momentum, we believe it also has significant opportunity. As you know, Bob Oros joined the company in February to lead the HD Vest business and has brought fresh new leadership and ideas into an already strong and structurally advantaged business. The team and advisors are responding well to Bob’s leadership. We’ve talked about many of the strengths of this business over time, which center upon dual advantages. First, HD Vest was the prime mover in creating a new type of advisor, tax professionals who also expertly advise their clients on investing. Today, we believe HD Vest is by far and away the leader in this space. So rather than ignoring the tax situation of clients as most other firms do, our advisors embrace taxes and focus on leveraging that information into tax-smart investing approaches. This is important because it means that when we’re at our best, our advisors can give better advice than anyone out there. Second, a grow-our-own advisor approach, which we believe, creates a strong cultural advantage along with a lower risk profile than what I call the rent-a-broker approach that typifies much of the brokerage world. When you put those together, they turn into real and measurable advantages, including superior retained revenue and segment margin. While we have a strong business and unique strengths, what makes us most excited is the real opportunities we see to further strengthen this business. While I won’t go into the full strategy today, there are a couple of initial areas that I’ll briefly touch on. You can expect more details towards the end of the year as we complete our strategic planning process. First is platform optimization. Our client base values tax-smart investing. We will focus our technology investments on solutions that are truly differentiated and proprietary and leverage our expertise in that area. One way to accomplish that is to leverage third-party technologies in areas that are not differentiated, and in many cases, are just as good or better than our current solution. For example, we’ll begin deploying a new third-party portfolio modeling product in August, which we expect will offer our advisors additional investment options as well as better portfolio management and reporting tools. This optimization also includes transitioning to a new clearing partner, the importance of which cannot be over-stated. It’s a big deal that we expect will be a win for end-clients, advisors, and the company. As noted in our press release, we have selected Fidelity Clearing and Custody Solutions as our new clearing provider, with that relationship going into effect sometime in mid-2018. First and foremost, the new platform will enable us to better serve advisors, and in turn, end-clients. We’ll capitalize on new capabilities, like highly-integrated business processing, data aggregation and a world-class client portal. We expect to begin to capture economic benefits immediately upon conversion, with the long-term benefits being significant. The primary benefit drivers are: First, better capture of interest income in a rising rate cycle, without the restrictive cap that exists in our current contract. Once we’re on the platform, each 25 basis point increase will translate into a roughly $2.5 million to $3 million expected annual revenue benefit. Second, an opportunity to bring direct-to-fund assets fully on our platform over time. This makes it more convenient for the client from both a reporting and trading perspective, and provides the potential for better economics for us. There are currently more than $14 billion of assets that fall in to this DTF category. Big picture, while the conversion is a year-long process and has inherent risks, we expect this new clearing arrangement to be accretive to the tune of $60 million to $100 million over 10 years, which can drop to the bottom line or enable acceleration in growth. Regardless, clearly this is a significant impact on a business that’s currently at a $50 million annual run-rate in segment income. The second area is driving growth through optimizing advisor success. Our company is unique. Our advisors are like family. We have mentors, chapters and support groups. Our engaged advisors are very involved, very successful and do wonderful things for clients. The better we can be at predicting, which new advisors will be similarly successful, the better the company and our clients will be. We discussed last quarter our plan to use predictive models in advisor recruitment in order to identify which tax pros are most likely to be successful as an HD Vest wealth management advisor. We rolled this out in earnest in June and have our first prospects in the pipeline using this methodology. At the other end of the spectrum, there are those advisors that never really took off for one reason or another. While a growing advisor count is nice to talk about, the truth is that just stacking headcount doesn’t mean anything. And when you have the wrong mix, you can spread resources thin, add incremental cost and risk, and distract from focusing on the advisors who are fully engaged and who have the most performance and potential. Last quarter we talked about how we’re shifting to looking at production per advisor as a more meaningful metric, rather than total number of advisors. Our strategies and implications are becoming more clear. For example, this means we will be more selective in who we recruit. We will allocate more resources toward advisors that are in the best position to grow, some of whom are in the group we call the moveable middle. And we’ll look to reduce advisors that are not engaged and who account for virtually no clients and assets. While total advisor counts will come down as a result, we expect to see production per advisor grow and we believe we’ll also see greater asset accumulation and growth in AUM through greater focus. To be clear, we don’t see this resulting in an adverse impact to our financial performance. In fact, we see the opposite. We’ll talk more about our overall strategy here later in the year, including how we expect to see advisor counts trending. I’ll stop there, but hopefully that gives you a flavor for the types of opportunities that are available. We’re working through our strategic planning process and will continue to keep you updated on our plans and progress. A couple final thoughts related to HD Vest. We held our annual CONNECT conference for advisors and had record attendance with more than 1,500 advisors, industry experts and partners. Advisors came away with high energy, fresh perspective and ideas. The event is another example of how we aim to provide advisors with the most up-to-date industry insights and to share best practices. On DOL, we saw no adverse impacts to the business of any note, following the initial June 9 change and remain on-track for a full implementation on January 1, if the Fiduciary Rule goes into effect in its current form. In summary, we continued to demonstrate progress in the quarter, and improve our positioning for future quarters, to grow assets, continue to increase the proportion that are fee-based, and better participate in the economics that go with client cash. Turning to Tax Preparation. TaxAct completed a strong tax season and first half of the year, with revenue and segment income both up 16% versus last year. We were also pleased with our customer retention levels at 70%, up roughly 400 basis points, as well as an increase in our professional users. This year, we continued our shift toward higher value customers and a higher average revenue per user. During the off-season, we’ve been working hard to refine our plans, improve our competitive positioning for next season, and to provide a truly enhanced customer experience. For those who follow this part of the business, you know that competitive intensity is very high and ratcheted up a bit further last year in the DDIY segment, with new entrants and competitive offers, including offers positioned as free, and increased marketing spend. We continue to believe a focus on long-term value and higher-value customers is the right strategy. And some of the lines of our strategy for tax-year ‘17 and beyond are emerging. We are clearly seeing the benefits of Sanjay’s thought leadership as we are deep into our strategic planning process. We’ll share more later in the year, but some of the themes are around: Focusing on the most attractive segments of the filer population, based on new custom research and offer testing; providing more long-term value for our clients and customers, with improved products, and an enhanced customer experience; improving marketing effectiveness, based on learnings from last tax year; enabling efficiency, speed and growth through investing in our technology and infrastructure, including transitioning to the cloud, upgrading our operations and support technology, and growing investments in data-driven technologies, tools and platforms to personalize and optimize, to name a few. We also see opportunity to diversify our sources of acquisition and revenue through broader distribution of our offerings. In closing, we had another strong quarter of continued execution across both businesses. We posted mid-teens revenue growth with strong operating leverage. Our businesses are well-positioned and getting stronger, and I remain very optimistic about the opportunities we have ahead. With that, I’ll turn it over to Eric.

Thanks John. Let’s dive in starting with our second quarter results, including year-on-year growth. Consolidated revenue of $139.2 million, up 16%; adjusted EBITDA of $42.5 million, up 20%; non-GAAP net income of $32.9 million, up 41% or $0.70 per diluted share, which is up 27%; and GAAP net income attributable to Blucora of $3.3 million, up 123% or $0.07 per diluted share, which is up 121% and includes the write-off of debt issuance costs of $16.3 million or $0.35 per diluted share. The write-off was triggered by the refinancing of our TaxAct-HD Vest 2015 credit facility and convertible notes into a single Term B credit facility in the second quarter. It is also worth noting that second quarter 2016 included a loss on discontinued operations of $20 million, which is also impacting the year-on-year trend. Turning to the balance sheet, we have cash and cash equivalents of $78.3 million. During the quarter, we reduced debt by $35 million and we exited the quarter with net debt of $284.9 million. This brings our net leverage ratio down to 2.7x. Let me echo John’s comments, we are pleased to have surpassed our stated goal of 3.0x times net leverage. And while this will allow us to look beyond de-levering in our capital allocation strategy, you should expect we will continue to highly prioritize debt pay down for the foreseeable future. Lastly, just a quick reminder that we closed our $425 million new credit facility in the second quarter. This new facility cleans up our capital structure, provides us greater flexibility, and allows us to achieve significant interest expense savings. Shifting to segment performance, beginning with Wealth Management. HD Vest second quarter revenue was $85.3 million, up 12% versus prior year and segment income was $12.4 million, up 25%. Both revenue and segment income finished at the high-end of our guidance range. Revenue for the quarter was driven by an 11% year-on-year increase in advisor driven revenue and a 20% increase in other revenue. Fee-based revenue was the highlight for the quarter and was up 14% versus prior year, and up 7% sequentially. As a reminder, fee-based revenue represents fees earned from fee-based AUM for investment advisory and management services provided by our advisors, typically as a fiduciary, to their end-clients. Other revenue was driven by sweep revenue, which was up 89% versus prior year and up 8% sequentially, as well as an increase in rep fees. As a reminder, with the latest fed fund rate increase, we’ve essentially topped out our sweep revenue rate upside under our current clearing arrangement. As John mentioned, we will be transitioning our clearing relationship to Fidelity Clearing and Custody Solutions in mid-2018. Under this arrangement, we expect further market upside from sweep. Momentum around fee-based AUM net flows continued as we added $222 million in the second quarter, which will benefit us in the third quarter and beyond. This brings our net flows to over $800 million over the last 12 months. This is in stark contrast to the $60 million of net flows for the comparable 12-month period ended June 30, 2016. Needless to say, we have been on a nice run since the third quarter 2016. Additionally, we had – again had a market tailwind, which added approximately $240 million increase in fee-based AUM, net of fees, for the quarter. We ended the quarter with fee-based AUM of $11.6 billion, up 18% year-on-year and up 4% sequentially. Touching quickly on second quarter AUA, which includes fee-based AUM, we exceeded $41 billion, up 11% year-on-year and up 2% sequentially. HD Vest segment income growth of 25% year-on-year can be attributed to revenue growth and operating leverage. Turning to HD Vest outlook for the third quarter and the rest of the year. We expect third quarter HD Vest revenue of $85.6 million to $88 million, and segment income of $11.2 million to $13.2 million. For the full year, we expect revenue of $339.6 million to $345.9 million, and segment income of $46.7 million to $51.5 million. In determining our third quarter and full year ranges, we considered several factors including but not limited to the following. A broad range for transactional revenue due to its inherent variability. Impact of DOL, which we believe will drive an increase in operating expenses in the second half of the year. With that being said, we have revised our estimates down to a range of $1.4 million to $200,000 of cost. We expect these costs, which are primarily implementation in nature, will be back-end loaded and the wide range is meant to capture the possibility that there will be a further delay in implementation. Impact of clearing firm transition, which was not included in our prior outlook. We expect to incur transition expenses in the range of $1.1 million to $800,000 in the second half of 2017, which again are more back-end loaded. Incremental operating expense related to additional investments identified during our planning process, and market volatility, including the impact to net flows and cash sweep balances. Transitioning to our Tax Prep segment. TaxAct revenue for the second quarter was $53.9 million, up 22% versus the prior year, and segment income was $36.5 million, up 23% year-on-year. Both revenue and segment income exceeded the high-end of our guidance expectations, in part driven by revenue outperformance but also due to shifting of costs into the second half of the year as our investments ramp. For tax season, 2017 first half revenue and segment income were up approximately 16%, marking another good year of growth for TaxAct. We have shifted our focus to our strategic planning process and we are looking to build upon what we learned this tax season. As I mentioned last call, we have begun making investments that will further improve customer experience and service, enable new revenue opportunities and provide flexibility in our go-to-market strategies. These investments are ramping up and will impact TaxAct segment losses in the back half of the year. For the year, we are expecting revenue for TaxAct of $160.4 million to $160.6 million, and segment income of $71.4 million to $73.2 million, or a segment margin of approximately 45%. We look forward to sharing more of our strategy and 2018 expectations over the next couple of calls. Let’s finish up with unallocated corporate operating expenses. Second quarter unallocated operating expenses came in at $6.5 million, a bit heavier than we expected and largely driven by search fees and nonrecurring personnel costs that were unrelated to the headquarters move. Of the $6.5 million, $1.9 million related to nonrecurring transition costs associated with our headquarters move, which do not qualify for restructuring expense treatment. For the third quarter, we expect unallocated operating expenses of $5.5 million to $4.6 million, of which approximately $1 million is nonrecurring transition costs associated with our headquarters move. With that, let’s turn to consolidated outlook for the third quarter and an update for the full year. For the third quarter, we expect revenue between $88.8 million and $91.3 million; adjusted EBITDA between a loss of $2.9 million to a positive of $900,000; non-GAAP net loss of $10.9 million to $6.3 million, or $0.24 to $0.14 loss per share; and GAAP net loss attributable to Blucora of $18.7 million to $14.8 million, or a $0.42 to $0.33 loss per share. For the full year, we expect revenue between $500 million to $506.5 million; adjusted EBITDA between $94.1 million to $102.3 million; non-GAAP net income of $58.7 million to $67.8 million, or $1.25 to $1.45 per diluted share; and GAAP net loss attributable to Blucora of $3.8 million, or $0.09 loss per share to net income attributable to Blucora of $4.6 million, or a $0.10 per share. As a reminder, third quarter and full-year 2017 guidance includes the aforementioned increase in operating expense related to the clearing firm transition. Lastly, there are a few things to be aware for our GAAP net income and loss attributable to Blucora guidance. First, it includes the impact of restructuring expense. Second, GAAP net income or loss attributable to Blucora will greatly be impacted by variability in our tax rate, which can be volatile, especially on an intra-period basis, as we expect full year book income before taxes to be just north of breakeven. Given current estimates, our effective tax rate for the year is approximately 15%, but again will likely vary as estimates are adjusted throughout the year. Finally, our GAAP net income or loss attributable to Blucora guidance excludes any impact to tax expense for discrete items and variable stock-based compensation granted to nonemployee advisors. In closing, I just want to reiterate what we shared last quarter in regards to segment outlook and how we are managing the business. In short, while I have provided color on our full year expectations for each segment, including segment income, we are focused on segment revenue growth and consolidated adjusted EBITDA. Thus, we expect, as we proceed through the remainder of the year, we will continue to refine our investments into each segment, along with corporate operating expense, optimizing for adjusted EBITDA. With that, I will turn the call over to the operator, and we will gladly take your questions.

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

John, look, I know that you’re sort of waiting to get into more of the operational nuances, I guess, maybe once Sanjay and really Bob get a little bit more integrated. But can you just talk about the timing of the proactive advisor, let’s call it the review process? I know you’ve probably been doing a little bit already, but are you stepping on the gas now? Do you know exactly are you going to wait until you know where the platform is headed? And given that you said it wouldn’t adversely impact results, I’m assuming there’s probably kind of steady pace to this to make sure you’ve more than offset whatever asset loss you’ll see arise, and kind of as an adjacent to that, you’ve talked a lot about improving advisor performance by enhancing tools and the training system in the past. So how does that factor in the equation?

Thanks for the question, Dan. Really appreciated it. As far as advisor counts go, we are – we’ve said at our last call that it’s something we’re beginning to take a look at, with a focus around ensuring that we’re putting our resources against the advisors and the prospective advisors that can have the most important impact on the business going forward. And so that effects tightening up our focus on recruiting, where we spend our time on onboarding; and after that, which advisors we engage most in driving long-term firm value and benefits for clients. And so from a timing point of view, we’re still in the midst of finalizing the tactics that we’ll undertake. But we foresee those beginning to be implemented certainly before the end of the year. And part of the reason for that is that we’ll be ready to do it, and we’ll be able to have a reliable processes or steady process, one that we think that the advisors that are the top producers and the biggest contributors to success for the firm will embrace actually, because they’re going to see that we can apply more resources to them in enabling their better success over time. So from a timing point of view, it will unfold during the course of this year, certainly will be commencing before the end of the year. And look, there is a linkage declaring, it does – would make a whole lot of sense to convert the advisors to a new clearing platform that you subsequently really would prefer not to be a part of the system. I want to touch on assets though. We are now looking at a situation where there will be a material impact or even a small impact, relative to asset counts at the firm. The fact of that matter is, we’ve got hundreds of advisors, I’m not going to get into anything more than that at the moment, but hundreds of advisors that actually contribute nothing in terms of assets or revenue. And as you might guess, as this is the case in other IBDs, we also have hundreds of advisors that contribute at a de minimis level. And so our view here is, why take the risk on those advisors, why devote expense to those advisors, when instead we see a massive opportunity ahead of us and getting better behind those advisor can make a difference for us. I think the second part of the question was around creating new tools for advisors, is that right? Dan, did I get that part right?

Yes, it’s just more about like in sort of in conjunction with your first answer. How should we think about – you’re obviously bringing some new tools to the platform and clearly I don’t know if the shift to the new clearing system is going to change, how you address changes to the platform in the back half of this year. You’ve also talked about enhancing advisor productivity internally. And I’m just wondering how that factors into either giving those guys a second shot, or do you then really just refocus on going more towards the predictive and spending more time on guys you think can make a greater impact on how you’re kind of balancing all of the above.

Look, it’s all-round engagement, like in life, right. There’s groups of folks that really get engaged, they embrace opportunity, they’re focused on the future, and they’re preparing to do the work necessary to be ever more successful. And we’ve got a lot of those advisors. I am so impressed with the advisor that we have at HD Vest. But at [indiscernible] you’ve got a bunch of folks that have gotten into this, and after a year or 2, begin to realize this really isn’t for them. They’ve never really found a way, despite sort of the improvement in training and coaching to move from being a tax preparer into someone who’s also advising on the wealth management front. And so yes, of course, we’re going to give people a chance to get engaged. We’re – that’s the right thing to do for the advisor and for us. But by the same token given, what I’ve shared now around the asset and revenue outcomes we’re talking about, we tend to foresee several hundred advisors, probably a reduction in advisor counts in that sort of range over a time period. As it relates to tools and focus, clearing is an important upgrade for advisors. In fact, the strongest sentiment that I’ve heard from advisors over the course of the last year in a little bit, and Bob has certainly heard an earful around can we take the steps necessary to make it easier for me as an advisor to get done what I need to get done. [Indiscernible] in the platform and technology of the future clearing party, we’re going to see some significant upgrades in the quality of the tools that advisors have to work with and the quality of service that advisors receive, and the amount of the neat technology that comes with that platform that we don’t have to any longer build, maintain and support. And so it’s going to be a big win from that standpoint. And lastly, as we’ve talked in the last call, we’re making – and we’ve reported and shared in our prepared remarks, making really good progress with regard to the advisory technology platform. We will be getting to pilot that just a couple of days here. So the improvements that we’ll see in advisor productivity always come from, hey, is it easier for the advisor to get their job done? So, yes, we’re moving in that direction. And second, do they have tools like the planning tools that we all know are really big catalyst to asset accumulation, consolidation and adoption for fee advisory? We’ve got a good stack right there already and we’re also looking to upgrade those over time.

So if I were to just summarize, John, obviously a lot of testing initially, but we should have some sort of meaningful traction, call it, by year-end, and then obviously there will still be some, call it, tinkering, but obviously, as we get into next year in the new clearing platform, you maybe have a better – sweet better idea of exactly sort of directionally what it should look like, is that fair?

Well, we have clarity right now, already based on the diligence we’ve done around with the upgrades in the platform we’ll be in. And look, we’re putting all of our attention to making sure that’s there’s seamless transition heading into next year. And we continuously get input and feedback from advisors. In fact, getting new advisor council to help guide our decision-making and processes here. And so we already have a pretty good line of sight. In fact, a very good line of sight into where we’re going with the platforms. We’ll have more clarity on where we go with advisor council. So I just want to underscore no one should be expecting that we have a call like this, we’re saying, while we’re taking down assets materially or there is some sort of revenue or whatever impact, that’s not the case. I’ve said this is around setting ourselves up for future growth without having any step back at all, we’d expect on the financial side. Hope that...

Yes. Again, I’m not trying to be nit-picky, John. Obviously, your numbers are really strong and your guidance is ahead of consensus and you’re pacing really well for the year. So I don’t think that that’s really in question at all. I’m just trying to get a sense of where your head is at and sort of how Bob is contributing to the process. And I think you’ve given a decent amount of color on sort of timing expectations. And just maybe one more thing on wealth. Can you just give me a sense – obviously, you talked about in the prepared remarks, but are you close now to full implementation? I know you’ve got still some cost to be had in the back half, so some of the back-end stuff. But do you actually think it will get delayed? And is that at all sort of influencing your decision-making process at this point?

So one of the things that we’ve been talking about from beginning is installing and asking a base of a really disciplined approach to managing a business. And so implication of that is that we continue to make the assumption that DOL continues and is not delayed, because we feel it would be imprudent to be caught, unaware as they are flat-footed with regard to what that means for end clients and for advisors. And so we’ve not let up in our preparation for DOL. Now that being said, I think most observers who are looking at the situation believe that there will – probably will be a delay and that within, what, four to six weeks will probably have visibility into that. But again, we think the best thing for the business is to continue to proceed on the path that we’ve been on in the event that DOL does fall through implementation. And if it doesn’t, as you know from the remarks, there’s some real upside for us relative to focus and costs, but we need to have a little bit more time pass before we take any change in course.

Got it. One housekeeping, then one last one for you. Have you actually started the cloud migration process yet? Or is that all back half expectations?

Dan, it’s Eric. So yes, we’re out of the gate on that – the process in working with our partners. And obviously, you choose the cloud that you’re going to go to and then you choose a partner to work with. So that work has been ongoing. And I would tell you, it’s on course.

Okay, perfect. And then just one last one for you, John. It’s been a while since we’ve been at sort of this nice comfortable leverage level, kudos to you guys on getting there. So maybe if you can just talk about your – if there is any changes or thought process around your plans for cash at this point? I know you would still have some investments to make, and you’ve talked about maybe segment tuck-ins. I just would love to hear your thoughts on how – on that and how you balance it versus returning capital to shareholders.

Sure. Thank you for that question as well. And it’s something that we ourselves discussed on a frequent basis, given the success we’ve had in paying down debt and it’s nice to check the box, if you will, on de-lever to the extent that we have shared, what Eric, like – I don’t know it’s like year and a half plus ago, we were going to hit the 3x net leverage. It’s nice to have one more thing on top of the string of things that we said we would do, and then we actually accomplished. Having said all that, our perspective is this, there is – look, there is a ton of key initiatives at TaxAct that are working in flight. We are working hard to set ourselves up for a really strong year, next year. As well as on the HD Vest side, where we’ve got DOL to see through the conclusion – in event that it does go through the clearing from transition, a number of initial growth initiatives that Bob has teed up. So Bob on the HD Vest side, Sanjay in the TaxAct, so they’ve both been with us now for over a 100 days and they’ve emerging clarity, right, on the portfolio of ideas they’re going to build long-term value and value for the firm in 2018. So there’s a lot on our plate. If something present itself from an acquisition point of view and it made absolute sense, then of course we’d consider. But right now our focus is really on driving organic execution, because of the excitement that we have around our prospects there. As it relates to net leverage, look, it’s great we got to a point of being below 3x net leverage, we would like to see net leverage trend down further. We’ve internally discussed somewhere in the 1.5x and 2x range, and we might be able to get there as soon as the end of 2018 and we see significant value to shareholders and continue to go down that path around reducing net leverage. So that’s our point of view on it now. We are sort of heads down, execution, organic growth, and we like what we see in the strength of the balance sheet that we have having paid down debt. Eric, what would you add to that?

The only thing I would add is, as it relates to a comparison of returning capital to shareholders, we are still very mindful that interest expense stands in front of our utilization, the NOL. And so while we’ve taken steps to reduce that interest carry, we can continue to reduce that interest carry by paying down debt, which has benefits for unlocking the value on the balance sheet. So that is a key consideration as we – as you run the numbers on the two scenarios. And just – that’s the one thing I would add, John.

[Operator Instructions] And our next question comes from Brad Berning of Craig-Hallum.

Again, congrats on the progress. And I wanted to follow-up on a couple of questions. One, maybe you could touch just a little bit further, if the DOL is implemented as recommended at this point for January 1, are there any transitional issues, any of the revenues, products, timing issues early next year that we should be just making sure to think about? And I think you guys have talked pretty well about overall – obviously, not a huge impact over time. But just want make sure we understand any quarterly progression, though processes that you have. And start with there and then I have a couple others.

Thanks for the question, Brad. Really appreciate it. So as far as implications of DOL, if the rule is implemented, as we’ve shared just a moment ago, and I have shared over time, we’re working really hard to minimize any potential impacts on advisors and clients. But the fact the matter is, there will be some changes that are associated with DOL, and when you think about the transactional part of our business, there could be some disruption to that part of business as the business model and the advisors adapt to what would then be the finalized rule. And what the work basically is, it’s almost like it’s a multivariant equation, so including things like where the economics settle in for clients, advisors and for the firm, where does product innovation go? That have been the trickiest points last year heading into this year – early this year and there’ll be – if DOL does go through, there’ll be fruited effort among manufacturers essentially to try to get to a point where they’ve created products that work for everybody. And industry has a long track record of adapting to regulatory change, and we are encouraged by a lot of the insight we saw coming out of the – especially mutual fund industry to find a way to adapt their products, be able to deal with DOL. From our standpoint, we’re encouraged by the offering that we have today. We’ve got offerings that can go down to accounts of the $10,000 level and would be fully compliant with DOL. On top of that, as you know, there is essentially a safe harbor around clients who choose a for-fee advisory solutions, the very thing that we’ve been encouraging our advisors to discuss with their clients forever. And as you know, we’ve seen some terrific progress there. But what we’re going to see is, over time, greater adoption of for-fee advisory; that’s a win for us. Meanwhile, there will be a bridge around ensuring that advisors are talking to clients around on the commission side of the business, products that work in the construct of the DOL. And so there’s a little bit of this, right, that’s not fully known until the channel goes through the changes that are necessary to adapt to the DOL. We feel like we’re in good position to be ready for that. And the product manufacturers will also get there from a product point of view. And look, at the end of the day, we feel good about who we are as a channel. When you think about the fact that the vast majority of our advisors, our tax professionals who have been acting as a fiduciary, when you take into account that the majority of our client assets are in the hands of advisors who already have the ability to work under the Investment Advisers Act, that’s tells us we were pretty well set up to adapt to the changes.

Appreciate the thoughts there. And then on – you mentioned in your prepared remarks, and I just wanted to give you a chance to expand a little bit more on what you mean by this. On the tax side, broader distribution opportunities and I think you meant tax side, but maybe you meant HD Vest. I just wanted to – on broader distribution opportunities, maybe you could just expand upon what you think that is available potentially out there?

Yes. So I’ll share a couple things here, but I can’t go into the details on in Brad, because it would be – there’s just a competitive element here we need to be mindful of. But to set the table for you a little bit, when you think about the big three players in DIY tax, of course we’re the smallest of the big 3, but we’re in the consideration set right among those who are thinking about the other couple of brands, we’re the only brand that is fully dependent upon essentially consumer marketing for distribution. There’s nothing wrong with that, and we’ve shared too that we feel like we can have far greater efficiencies next year within the context of consumer marketing, and we’ll continue to invest there. However, we’re the only brand again that has sole dependency on consumer marketing to grow revenue and units. And so we’re looking at getting our product made available in the context of other e-tailing sorts of vendors for a lack of a better expression. So big brands that are e-tailers that can be presenting our product to their customers. So that’s point one. Point two is – and I’ll pause and see if those made sense, if there’s is further question. But point two is, we’re looking at getting much more muscle behind enterprise sort of relationships, and I’m not going to give any further detail than that, but I want to give you just enough color for you to get a sense of our direction. But we feel like there’s also a way to partner up with other firms, not to just resell our product but to offer our product as a part of an enterprise sort of play. I’ll stop there. Those are the opportunities that we see. We, over time, would like to see it’s begin to create some substantial revenue from these other sources of distribution of the product, and we’re taking the steps necessary right now to sort of plant those seeds that begin to have an impact in our economics in the coming years.

That’s helpful and I appreciate it. Last question, can you talk about where you’re at today? Where the new relationship from a platform standpoint will get you on clearing to how you can have technology interacted directly with the HD Vest customer and how you could potentially bring synergies between the tax and that from a digital perspective? Obviously, you’ve got great relationships and a unique platform, but how do you increase engagement year-round between the two platforms from a digital product presentation perspective?

So let me try to get those in order, and then come back, Brad, if I’ve missed something on it. So relative to sort of digital big picture, first kind of thinking about the HD Vest business and that current business model in HD Vest, it does [indiscernible] clearing, there’s a huge opportunity to enable more multi-channel way for the end client that’s working with HD Vest and our advisors. The fact of the matter is that we’ve got very few clients that access our services and capabilities online. I don’t have a number in front of me, it was higher than 2%, I’d be surprised. It’s kind of amazing that we’ve had such success in HD Vest, without having the ability to work with us on an online basis. It’s a testimony of the – probably the relationship strength that those tax preparers have with their clients. But by the same token, look, the modern way of working with a firm, you’re going to want us be able to access your accounts and move money and these sorts of things in the context of doing that [indiscernible] more convenient. And so we’re delighted that as part of the clearing conversion, I will be able to flip one of the switches probably a little bit too aggressive, but we’ll be able to present end clients and advisors the ability to interact with their money and their advisor on an online basis. So that’s innate into the clearing offering that we get from Fidelity. And we’re making investments as well in terms of our contact center and creating better ways for clients to interact with the system in that basis as well. So what we see over time in that HD Vest business is much more of multichannel way of working with the company. And that will give people the added convenience of working with us in that fashion, it builds our confidence and sense of control they we have in their money. So it’s important things to get to. As you sort of think about the fact that we have this enormous advantage in having these two businesses together, there are a number of touch points that we’re working through right now and possible ways of creating much more of a model that’s tapping into the capabilities of both companies. And it’s a little bit early to share specifics on some of those, but it just stands to a reason that if we’ve got a really strong digital capability in TaxAct and we’ve got a robo-advisor that we are now focusing on the TaxAct client base that there’ll be some translation of those sort of capabilities in the HD Vest. And likewise, we’ve got thousands of advisors at HD Vest that are looking to grow their business. We’ve got 360 or so thousand clients in total. There are well over hundreds of thousands of clients that have the sort of wherewithal financial they really would benefit over time in getting advised ratio, that’s advisor. So we’re looking to get the best way to connect those dots, while we also focus on growing each of the businesses on a standalone basis where we see ample opportunity. And so, the way we look at it is, we’ve got this situation where we can serve clients at any point of their life cycle, at a point where they are preferring to do it by themselves, at a point where they prefer to do with somebody, or at a point when they want to have someone do it for them across the spectrum of their tax needs and ultimately their financial services’ needs. Does that make sense?

Yes, it does. And if I could sneak one last one in real quickly then, because it’s very helpful. On your tax professionals, to the extent that they are engaging small business owners, are there opportunities to engage on more of a small medium business enterprise level basis for distributing products on a benefits basis – tax solutions on a benefits basis? I’m just kind of curious as to whether this is still going to be an individual focused – you brought up the enterprise solutions things, so I’m just trying to think about whether there is the small-medium business relationships that you guys have move into more of a benefits package type being involved with companies? Or is it still just mostly going to be in individual focused solutions?

So we’re clearly approaching our strategic planning process where we’re needy in putting front and center in that prospect, and client plus customer front and center. I’m looking to tune our offerings and our approaches to the areas that have the most opportunity for us. That said, we think about the HD Vest business, we have a number of advisors who have great businesses and practices, if you will, in serving small business right now in a variety of different ways. They can bring great value to the small business and the small business owner around things like set by array and that sort of thing. Our people are also advising clients on other retirement plan ideas and solutions for their companies. And so we have heard from the advisors that we could probably do a bit more there to help pick the structures and the product they would need for greater success, and we do see there’s a growth opportunity. And like I said, we’re really tuned around what’s the demand we’re seeing from end clients, and we hear a lot about that from advisors. I mentioned the new advisory council, it’s an area that we’re discussing with the advisory council around, hey, how do we best that you guys are up for success? Are there gaps in the product line? Are there gaps now? We’re training folks. And that is an area where we feel like we can go deeper. But to be clear, we already have a fair amount of effort there today and advisory being very successful in winning businesses, small business centers.

[Operator Instructions] And I’m showing no further questions at this time. I’d like to turn the conference back over to management for any closing remarks.

Well, thank you, and thanks, everybody, for joining the call today. In closing, I’d also like to thank our employees, our advisors and customers who make our business so enjoyable and who are at the heart of our success. We’re pleased to report another strong quarter and look forward to continuing to update you on our progress. Thanks very much.

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program and you may all disconnect. And have a great day, everyone.