Bill Michalek - Vice President of Investor Relations John Clendening - Chief Executive Officer Davinder Athwal - Chief Financial Officer

Brad Berning - Craig Hallum Dan Kurnos - Benchmark Company William Cuddy - J.P. Morgan Chris Shutler - William Blair

Good day, ladies and gentlemen, and welcome to the Q2 2018 Blucora 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. [Operator Instructions] As a reminder, this conference call may be recorded. I would now like to introduce your host for today's conference Mr. Bill Michalek, Vice President of Investor Relations. Sir, you may begin.

Thank you, and welcome, everyone to Blucora's second quarter 2018 earnings conference call. By now, you should have had the opportunity to review a copy of our earnings release and supplemental information. If you have not reviewed these documents, they are available on the Investor Relations section of our website at Blucora.com. In addition, this quarter we'll be referencing a set of slides that are also available on the website and will be displayed in the webcast viewer. I'm joined today by John Clendening, Chief Executive Officer; and Davinder Athwal, Chief Financial Officer. Before we begin, let me remind everyone that today's discussion contains forward-looking statements based on the environment as we currently see it and speak only as of the current date. As such, they include risks and uncertainties, and actual results and events could differ materially from our current expectations. Please refer to our press release and our other SEC filings, including our Forms 10-K, 10-Q and other reports, for more information on the specific risk factors. We assume no obligation to update our forward-looking statements. We will discuss both GAAP and non-GAAP financial measures today, and the earnings release available on blucora.com includes the full GAAP and non-GAAP reconciliations. Finally, I'd like to call your attention to a change in our naming convention as it relates to assets at HD Vest. In the interest of clarity and to make the categories more intuitive, the term total client assets has replaced the previous term of total assets under administration or AUA. The term advisory assets has replaced to the previous term assets under management or AUM. We've also introduced a new category, brokerage assets which represents the difference between total client assets and advisory assets or in other words all non-advisory assets. For those of you looking at the webcast slides, the table on Page 3 summarizes the changes. With that, let me now hand it over to John.

Thanks Bill, and good morning, everyone. Blucora has continued to demonstrate strong momentum in the second quarter, pushing double digit growth rates and exceeding the high end of our guidance range on all metrics. Compared to last year's second quarter, Blucora grew revenue by 13%, adjusted EBITDA by 24% and non-GAAP EPS by 39%. The strong cash flow generation allowed us to further strengthen our balance sheet and paid out another $40 million in debt. Our net leverage ratio exited the quarter with a very comfortable 1.5x which is down 2.1x and 2.7x in the year ago period. Overall, we continue to execute the plan and are very pleased with the results. Moving to the business unit level, starting first with wealth management. HD Vest continue to demonstrate momentum growing revenue buy 8% year-over-year to $92 with continued investment in the clearing conversion project, segment income also grew 4% to $13 million. As Bill mentioned, we have updated our Nomenclature for our asset categories. Advisory assets, previously referred to as AUM were at 12% year-over-year to $1.9 billion. Total client assets previously referred to AUA increased 9% year-over-year and crossed the $45 billion mark. The levels for both advisory assets and total client assets represent new record for the company. Net inflows into advisory assets were about $90 million in the second quarter and advisory asset as a percentage of total client assets were 28.8%, representing an increase of about 90 basis points year-over-year hitting a record level. As advisory assets continue to grow faster than the total, is one component along with trailing commission and sweep revenue that further reduces our dependence on transactions and increases our recurring revenue rate. Our recurring revenue rate was 82% in the second quarter, up 100 basis points year-over-year. A few different updates I'll add here for HD Vest. First, you may recall that in our Q4 call, we announced that in our effort to expand our market to serve accounting firms with multiple partners and offices, we headed our first two firms. In the second quarter, we had two more firms to platform with another seven firms now right into the stage. The nine new firms have about $23 million in commutative accounting revenue with total estimated client assets using an industry rule of thumb of about $2.3 billion that the advisors conducted serve service one or our fully licensed. Second, we recently completed the second phase of our advisor reductions. As we recall, the first phase of reductions with client to build it had diminished assets and a debit balance with us. The second phase included a mandated that advisors achieve a minimum level of client assets within certain intervals, specifically $1 million by May. While we do have one more interval requiring $25 million by January 2019, we expect that the bulk of the reductions are now behind us. You could still see another 300 or so reduction by year end, then would expect to return to a normalized environment in 2019. Third, during the quarter, we announced our relationship with eMoney which provider our advisors with cutting edge planning and collaboration technology. The platform which will pilot this market and launch concurrent with the clearing conversion will make it easier for advisors to create and update holistic financial plans aggregating household information in real time and enable them to visually demonstrate projected benefits with clients through an interactive portal. Any time you can improve the ability for advisors to provide a clear vision of a client financial picture help strengthen relationships and retention and often drives additional client asset consolidation along with interest and portly advisory services increasing total advisory assets. Fourth, we will soon be launching two new advisory solutions for clients, including Vest strategist, essentially managed solution for high net worth investors that both low fees, direct ownership of underlying securities and tax loss harvesting while leveraging third party investment managers such as [indiscernible] as well best assets, a low fee, low account minimum managed solution to leverage its automated investing or global technology. We believe this will be attractive new offers for current at both ends of the asset spectrum and may start to further accelerate the shift of fund from brokerage into advisory solutions. Both solutions launched concurrent with a clearing conversion. Finally, as we get closer to clearing conversion date in late September, I'd like to provide a bit more detail on what to expect. To avoid a dual migration indicative people work, in here we began to show advisor and client transfers ahead of the conversion. As a result, we expect to see slower net inflows in Q3 followed by a stronger Q4 and possibly even overflow into Q1 of 2019. Now that we've had two interest rate increases this year and that incremental guidance from third and expectations for the remainder of this year and next, it seems like a good time to update our expectations for total clearing related revenue benefits. As you recall, we've indicated there are three primary way in which we expect a benefit from the clearing conversion in terms of either increase revenue or decrease cost, including; number one, better capture of interest income on client cash or cash sweep in a rising rate cycle; number two, increased revenue share economics including an opportunity to bring back on the platform assets currently held direct-to-fund or DTF; and number three, technology savings. As it relates to cash sweep, we indicated that each 25 basis point increase in the Feds Fund rate would equate to $2 million to $3 million in incremental segment income benefit that could either drop to the bottom line or enable acceleration in growth. Of course as the Fed Funds rate increases, we'd expect also the client yields would move up but at a far slower pace. In part to optimize balance retention, big picture, we'd expect the majority of the benefit to rising rates will result in increased segment income in year with the bulk of the remainder focused on targeted investments to drive organic growth in few years. Looking at all the components in aggregate, for the fourth quarter of 2018, assume the Fed increases the target range of 2.0% to 2.225% in September, we expect a small net benefit of approximately $1 million, which compares to our previous expectation a breakeven. For 2019 assuming one additional increase in the target range to 2.25% to 2.50% by mid-2019, we now expect a benefit of $10 million and $12 million, which compares to our previous expectation of $6 million to $8 million. And for 2020, assuming no additional change in the Fed Funds rate, we now expect the benefit of between $12 million to $14 million which compares to our previous expectation of $8 million to $10 million. The significant difference versus our previous expectation is primarily due to higher interest rate expectations as well as updated assumptions into the revenue share opportunity. We realize that the composite view of the Fed Funds rate is far more aggressive with two or three more increases by the end of 2019. As we get through the transition, we expect further updated assumptions and provide more detail. As you can see even annualizing the low end of our 2020 benefit assumption would already be a total incremental value of the ten year contract about $120 million in segment income. That's about $20 million with the top end estimated range we provided just a year ago and equates to more than two full additional years of segment income at our current run rate over that ten year period. I also point out that the incremental revenue sources from its agreement, cash sweep and mutual fund revenue share, will start to further benefit our recurring revenue rate that I referenced earlier. Given the importance of this conversion and the sheer number of touch points across the business, we're dedicating an increasing number of resources across the organization to ensure a successful completion and mitigate any disruptions advisors in Q4. So overall another strong of HD Vest and with great ahead. Turning to tax preparation. TaxAct completed a very strong tax season in first half of the year with first half revenue up 70% year-over-year coming in a bit higher than our upper revised guidance for May of 15% and almost double our original expectation going into the tax season. This marks a 20th consecutive year of revenue growth of TaxAct. First half segment margin came in at 57.3%, which is also above our previous expectation of 36.0%. We're pleased with our progress this season which included a number of highlights including returning to growth in monetize filers, improving the customer experience with enhance support and functionality, including a greenly advanced mobile experience, improving paid customer retention and watching our blueprint financial assessment to analyze tax returns and offer suggestions to improve customer's financial health for which we received more than two million requests and identified average savings of $2,700. Increasing professional ecommerce by 3% and launching more than 10 new partnerships to improve customer acquisition and extend customer relationships with new products and operations to serve the more holistically across their financial lives. Now with tax rate 2017 behind us, we're working hard to refine our plans to build on the success of this year in further improve our competitive position for next season. We'll share more detail on that later in the year, but a few areas of focus are around providing more long term value for our customers and clients with improved products and enhance customer experience. And tax for 2018, our customers will find our product easier to use from start to e-file completion. Incorporating our learning time pricing packaging messaging, deepening and broadening our partner relationships and expanding third party offer new blueprint and with the tax interview giving customers more products, more value and more ways to improve their financial lives. In closing, we had another strong quarter and continued execution across both businesses. We posted double digit revenue growth with strong operating leverage, strong cash flow and a strengthened balance sheet. HD Vest, our record levels of advisory assets and total can assets, and TaxAct business finished the first half with high-teens revenue growth and strong segment margin. And subsequent to the end of the quarter, we announced we added two Independent Directors to our board, including Carol Hayles, the Former CFO at CIT Group and John Macilwaine, the CTO at Braintree subsidiary to PayPal. Overall, we continue to improve our business position and capabilities and remain very optimistic about the opportunities we have ahead. With that I'll turn the call over to Davinder.

Thanks John, and good morning, everyone. I'll of your second quarter financial performance, our third quarter outlook and provide an update on full year guidance. I'll also provide detail on our net revenue position at quarter end. Comparing Blucora's current quarter results with the same quarter last year, our revenue was $157.8 million, up 13%. Adjusted EBITDA was $52.8, up 24%. Non-GAAP EPS was $0.97, up 39%. Our Non-GAAP net income was $47.7 million which is up 45% GAAP net income attributable to Blucora was $34.9 or $0.71 per share representing improvements of 957% and 914% respectively. Looking at segment performance, wealth management for the quarter was $92 million and segment income of $13 million, both above the high end of our guidance range. Revenue for the quarter was 8% higher than prior year, primarily due to fee based advisor revenue, which is up 12% versus per year on hire advisory asset value. As a reminder, advisory revenue represents either at on advisory count or HD Vest investment advisor. Commission revenue was 6% year-over-year, primarily of high recurring commissions went back to higher asset values. Other revenues up 3% year-over-year, primarily driven by higher cash sweep, as well as increased mutual fund revenue share. Net flows at advisory assets were $89 million driven in the quarter, bringing our year-to-date net flows to $408 million. Market appreciation during the quarter and approximately $140 million advisory asset balances net of fees. We are pleased with our net flow performance as if it is an area focus for us as we continue to convert brokerage assets to advisory assets as well as drive growth to new advisory assets. We ended the quarter with advisory assets of approximately $13 billion which is up 12% year-on-year and up 2% sequentially. Advisory asset as a percentage of total client assets is currently 8.2%. Total current assets for the quarter were $45 million, up 9% versus prior year and 1% sequentially. As I previewed last quarter, and as John mentioned in his remarks, we began to slow advisor transfers in June ahead of the clearing conversion. The result of this clearing combined with the departure of our larger advisor, [indiscernible] client in Q2 cause net flows into total of client assets to be fully united during the quarter to about $45 million. However, we expected to see a corresponding pick up in net flows in Q4. The current transition on schedule for late September, non-recurring clearing related expenses incurred in the second quarter were approximately $800,000 and expect to incur another $700,000 in the third quarter and about $300,000 in the fourth quarter. Although as John mentioned, we expect to see a benefit in the fourth quarter that were more than offsetting the expenses and result to a full year net benefit of approximately $1 million. Turning next our wealth management outlook for the third quarter and full-year 2018. We expect third quarter revenue of $89.5 million to $90.5 million and segment income was $10 million to $11.5 million. For the full-year, we expect revenue of $369 million to $377 million, and segment income of $53 million to $55.5 million. Moving on to the tax preparation, TaxAct revenue for the second quarter was $65.8 million, up 22% versus prior year and segment income was $44.1 million, up 21% year-on-year. Both revenue and segment income exceeded the high-end of our guidance expectations driven by better than expected collection rate on a refund transfer product as well as higher product sales. Gross TaxAct revenue was up approximately 17% with segment income up to 15% marking another good year of growth for TaxAct. As John mentioned, we are working hard to build on what we learn from this tax season and further improve our competitive positioning for next tax season. As part of this, the continued incremental segment income relative to plan to increase our investment in the beginning of second half of this year. For the full-year, we are expecting revenue for TaxAct of $184.5 million to $186 million and segment income already $2.5 million to $84 million, and segment margin of approximately 45%. We look forward to sharing more of our strategy and 2019 expectations over the next couple of calls. Finishing up our second quarter performance, unallocated corporate operating expenses were $4.2 million, a bit lighter than we expected due to the timing of certain guidance between quarters. For the third quarter, we expect unallocated operating expenses of $5 million to $5.5 million. Moving on to the liquidity. We ended the quarter with cash and cash equivalents of $89.8 million and our net debt of $175.2 million. It reflects another $14 million paid during the quarter. This brings our total debt reduction year-to-date to $18 million in line with our stated goal and demonstrating the strong cash flow generation. 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 $92 million to $95.5 million and adjusted EBITDA loss of between $2 million to $5 million, and non-GAAP net loss of $8 million to $11 million or $0.17 to $0.23 per share and GAAP net loss attributable to Blucora of $18.5 million to $22.5 million or $0.39 to $0.47 per share. For the full-year, we expects consolidated revenue of $553.5 million to $563 million, adjusted EBITDA of $114.5 million to $119.5 million, and non-GAAP net income of $89 million and $94.5 million, or $1.80 to $1.82 per diluted share and GAAP net income attributable to Blucora of $42.5 million and $46 million, or $0.86 to $0.93 per diluted share. As a reminder, our outlook includes the following assumptions. A broad range for transactional revenue due to its variability, impact of clearing firm transitional-related expenses, market volatility including the impact to net flows and cash free balances and effective tax rate of 2% to 6% for GAAP net income attributable to Blucora and our guidance for GAAP net income or loss attributable to Blucora excludes any impact to tax expense for discrete items and variable stock-based compensation granted to non-employee advisors Consistent with our previous messaging, we will continue to run the business to optimize for adjusted EBITDA as such we will refine our investment into each segment along with corporate operating expense for the second half of year. This concludes our prepared remarks. We will now turn the call over to the operator for Q&A. Operator?

Thank you. [Operator Instructions] And our first question comes from the line of Brad Berning with Craig-Hallum. Your line is now open.

Hey, good morning. Congrats on the quarter. Couple questions for you. First, maybe you could expand a little bit upon, I know you want to get too deep in the next tax season stuff but as far as new types of products, new partnerships or whether it's expanding most of the partnerships you've got and if you could talk a little bit about how do you think about monetization of those partnerships overtime. Is it a portion of the revenues of this business overtime or does it become a more dominant piece of the revenues versus what you charge the customers, curious I think about that allocation of revenues overtime? And then one other follow-up. Can you just kind of it's a little quick on reading through some of the adjustments for second half a little bit, can you kind of just refocus on what are the key items for the extra expenses in the second half and the timing issues just kind of re-go we through those in a little bit slower format?

Hey, Brad. Thank you for the question. John here. I'll start with the first couple a question there that you are posing and turn it Davinder. I think the big picture thing around leering from last year are these curious I think back on last year with a number of stride in a lot of areas, you're touching on some element to that, but the client experience is far better and particularly proud with the headwind remain on mobile. As you know, and I think then get into second part of your question, we launched blueprint, we had a handful of new partnerships all around that. And so that is an area that we're going to continue to focus on in the coming tax season. I'll come back and double click in that in a second. We also had a lot of learning around packaging and the power of packaging and that wasn't loss, it's going into the season just that as we looked at consumer behaviors with have a chance to do some readjusting during of course the year and we're looking fine as well heading into next year. As far as blueprints and the partnerships and what that means for the long term, our goal was to launch it from learning last tax season, see our past, we can grow it, we've not been in much in terms of contribution. But we are excited about the long term possibility. We noted in the last call that we had $2 million of our filers essentially give in fact we got permission to look at our tax information and share offers with them. And year we really got a get to the balance of this year before or even of the uptick that we get on that, because while it's great to capture people in the moment in the tax season as occurring up there, and find their taxes, ,we got an opportunity now that's the market and different way do it before. Overtime could have become a more material contributor absolutely, that's our hope around it. I don't know that whatever overtake that may be a horizon too far that we talking on the call but we are optimistic about it. And you know one other think we think about too is we do have blueprint, with a way to monetize otherwise free tax filers and that cause us to think a little bit about our messaging and our go-to-market approach. Yeah, might a lot more to say about that overall plans for next year later down the road. Davinder would you mind to go around the second part.

Sure. Thanks and good morning, Brad. Good to talk to you. So couple of things. First of all, on the - on unallocated corporate expenses, I think there is story is for the full-year, we expect to be where we thought would be there some timing shift from Q3 to Q4, but things like higher and things like that. And looking at the operating businesses, what we have is we have some expenses in Q3 related tax hike around initiative that are we not - not as called out before in the back half year expect being Q3. So I think that probably we are seeing, Brad.

Okay. That's helpful. I just want make sure we focus on the right spot there. I'll be back in the queue. Thank you, guys.

Thank you.

Thank you. And our next question comes in the line of Dan Kurnos with Benchmark Company. Your line is now open.

Great. Thanks. Good morning. So, let me just start with wealth management John. I just want to kind of parse out some of the moving pieces here as you near the clearing conversion, you look obviously there's always a moving parts on the advisor stuff and I know that obviously you guys are going through your own kind of weeding out process which clearly you're seeing the improvements in revenue per adviser. But could you just talk about the impact that the transition or the pending transition is having on both sort of the existing advisor base how they're preparing for it and your ability to win new business, obviously you had a lot of some large client, some large advisors come to you and that seems to be the trend, it sounds like you lost one this quarter. So is that having an impact now in and is that part of the reason why once you get to passes the in-flows pickup in Q4 maybe some guys are tabling coming over until you get pass the conversion, can you just give me some color on that?

You bet Dan, and good morning, and thanks for the question. I appreciate it. As far as the clearing conversion as you might imagine, we're applying sort of full force around getting it done properly and a big part of that is clearly around educating and training our advisors. So they are ready. And it does have an implication for where people spend their time, it's unavoidable people going to - they spend some time in that training and to some degree talking to clients about, oh that's a very sort of low intensity effort, we experience that most of our - most of the conversion work here isn't going to require any action at tall by the end client and that's a really important point here. There is strategically important point here is our advisors are on balance, really excited. They are excited about the conversion. They see what the enhancements are going to be for them in the advisor experience and the customer experience, that's around certainly taking some time off their plate as working with us will become part easier. They've asked to the eMoney platform and also all that comes of investments. So difficult than a lot of conversion, you've got advisors here who eventually have been clamoring for us to make some improvements and changes. And so that sets us well and as I know that it's worth repeating without being careless about it that want to get this smooth as possible acquired. And again the vast majority of the council transfer over with no action at all required by the client. My second point upfront there was yeah, there is some time that advisor spending, getting trained up on that. And we have to remind for ourselves around when we bring in new advisors into the platform and as you might imagine, we don't want to have people come in and we convert them. And so we have pushed some new clients, especially larger clients they come after we completed the conversion. And I has noted, we have slowed some clients transfers as well advisors just put some of their clients cancel as well when the conversion. And again we pushed some of our larger advisors as well. We expect that to come back. We expect that fourth quarter will be a good quarter for us and maybe we can push some of the advisor and client formation into the first quarter of next year, remains to be same but we do that distraction factor that does show up short term. The big picture why we are really excited about where we're at, we're excited about what the capabilities are on top of the economics which is as you know are phenomenal on this new contract.

Got it. That's really helpful. And then one on tax before balance sheet question. I kind of want to again not going into your game plan for next year, but maybe if you can give us some now that you're past kind of again even sort of the stragglers, the extensions, just your thoughts on marketing and some of the marketing channels, I know that you know if have that your competitors took price this year that allowed you to take price as well and I'm sure your reinvested that in some of the unit growth that you saw, paid unit growth I should, clarify which is nice. But as you go into as you start formulating your plans for next year, do you think it makes sense to work more, branding obviously has been an opportunity for you guys, it's kind of a dead period out of sight, out of mind. How early do you think you need to come back to market? How early do you think you need to stay in front of these people to make sure that you can improve your retention rates and just any other general thoughts on sort of your early initial learnings from last year's marketing game plan and how you might apply it heading into the balance of this year getting prepped for the beginning of next?

Sure Dan. Thanks. I mean you know couple of things there and as you know it is too early for us to getting the whole lot of details here. But when I think about learnings marking point of view, I tend to break it down into mix, however we continue to refine the marketing channels were most present and when. That when point is crucial in tax business. There is certain moment the decision that people are making heading into and into each of the two peak. I think to be a better understanding of the when factor as well as how to find tune our messaging to the different populations that are most paying attention during each of those two peaks. And second thing is around that - the second peak point is around messaging. We're doing a very deep exploratory this year on what's the best way to connect to the top couple of segments that we tend to go after and continue to go after. So this is a broad universe, [Technical Difficulty] during this year to sort of, we grow our efforts around activity that will be in structure, giving the other players so much more expand than we do, why it's going to be focused on, what's the - how we break through and have them insured. As we've shared previously another element of the marketing mix is gaining distribution outside of consumer marketing, made good progress with facility and KeyBank last year, we look to - we capitalized under, so the partnerships going forward, so that we can drive growth outside of the hand-hand compact and also sometimes be like. And so the opportunity to begin on those messaging and on the mix element as well. One of the things I want to come back here is in terms of the first question had earlier from Brad and that is the fact that we can now market to a couple a million prospect and TaxAct gives the couple of touch points, 2, 3, 4 touch points during the course of, now they will pay a lot of taxes and to reach out. And mostly it has a benefit in terms of awareness and retention going to the next year. I got it and - it would, we could prove that out. If it's massaging, your taxes got right here, different methods that we thought of land on front of folk, so we are constantly optimistic that that will serve as well overtime.

Got it. Thanks John. Appreciate it. I'll lock at back in queue.

Thank you. Our next question comes from line of Will Cuddy with J.P. Morgan. Your line is now open.

Good morning.

Good morning.

I see it has a best interest proposal at current period ending on that next week, I am sort of recognizing there are number moving pieces, how are you thinking broadly about the proposal? And most specifically how you are thinking about the changes on the usage that awarded by when you think about your advisor base? Thanks.

Well, thanks for question. John here. I really appreciate it. So we've been paying close attention as you might imagine. However, given that we're still in a comment, we have a whole lot to say. We know that things can really change a lot between the initial sort of proposal and what things are happening. And so forth and changes that come through on things like nomenclature all likelihood change what we call advisors. I am not certainly worried about it, I am not worried at all about what may come out of the proposal. If there are changes we can adapt to them. And you know the thing that we see in method that the SEC will come up with something it's practical and that's in the best interest to clients and we believe that we can adapt to it as necessary. One other point is work primarily with the tax professionals, the registered tax folks, the CPAs, these are people who are familiar in working in a manner that their clients who looks they put their interests first. There is a method producer has relationship on the tax side. And so what you lost and our advisors how to behave properly it's really sort of the fabric of who they are as advisors. And whatever comes to change like that it gives us a real sense of confidence that within most certain, maybe other firms that we can adapt here because of the nature by channel that you will.

Okay. That makes sense. And so John, you had mentioned updated assumptions on the revenue share opportunity after the fidelity conversion. Can you elaborate on some of those updates from new share?

Sure. So we have backgrounds, the opportunity that you're raising here is around all those there's billions of dollars of assets they have off platform, not uncommon at all. And for us it is a big number, it's one of the things that enthuses us around the fidelity national financial contract because you've got an opportunity to bring a lot of those assets on platform. And its capital planning that we're doing right now to operate and process these procedures and encouraging other advisors to go ahead and bring some of those off platforms mutual fund, find a platform. And when you do that, we get an immediate benefit associated with the depth and breadth of platform that fidelity has and also due to the nature of the contract that we signed with them. And so we go economic incentive to move those assets on the platform and large to be really clear about it and also by way of making it more tangible. There is a large chunk of those assets that are with a large fund complex that on the fidelity platform. And so that should make the first biting apply relatively straightforward and bring those assets on platform. And the second thing I wanted to mention on this topic is that, as I noted in the prepared remarks, we've got a small balanced diversified automated investment product that we'll be launching with the conversion and something made available by fidelity. And here's a possibility that now be the right time given the little balance minimum on this that advisor you got it and clients that had a couple of mutual funds in our platforms, now the time to bring him on into a well-diversified portfolio that makes sense and the client makes sense for the other constituents and you see there is a big opportunity as well. Timing wise, we anticipate that the majority of DFT benefit will be capturing in first two years as we sort of prosecute the opportunities there. We're advising and guiding our advisors on that, how does approach that. And yet again here we have to do and work and make it so. And as you know a big picture of the overall economic benefit of the clearing conversion is associated with the change in our participation and the economics of client cash DTF material, it's not a lion share, the opportunity is, again just for clarity.

Great. Thank you for that.

Thank you. [Operator Instructions] And our next question comes from line of Chris Shutler with William Blair. Your line is now open.

Hi, guys. Good morning.

Good morning.

So John, I want the first touch on and I think the names you gave were best strategist and best access, can you just review again what those two offerings are and what the pricing will look like?

Sure. So in terms of the offering themselves, better strategist - legal advisors, sorry, best strategist is unified manage account. That you make program and therefore it's asset may essentially where our team over here and HD Vest has gone through. We'd expect a rigorous due diligence process to identify great managers that will be part of the program is the first for us. And so we've got the opportunity as advisors have conversations with clients, talk about not only here the great set of mutual funds. Our mutual funds that you can use clearly diversified portfolio. On top of that we've got strategy specific manage accounts. And look I recognized that we launched some years ago another brokerage firm. And I think you can go back probably 8, 9, 10 years when some of the traditional online brokerage began launching this. And they do a nice job of providing additional opportunities for advisors to talk a client and talk about additional feature with clients at the end that creates the benefit that you tend to see for the account like these in other words the sensor got control of the investment, there's the inherent tax loss and tax work harvesting opportunity inside that manage account very different than a mutual fund. In spite of the price point, the way we typically work as you've got a platform see, you have got, what the fund manager charges and model like ours advisor loss and then overlay. And so the pricing is going to some degree depend on how those play out, where there is some flexibility again in a model like ours and some variability around the platform. But you can think about it as low as 70 basis points would be the sort of thing, I tend to see the marketplace could be higher than that. But we think about as we manage mutual funds and typical OERs in those tend to see this pretty well in range. Now the other program that we mentioned is also need opportunity for with as a chance broaden our reach, but in the other direction, right. So manage accounts can be more relevant to folks that have a larger account, feeling of need for more touch and feel and that sort of thing in our relationship. And so that access is the one that placed where the other end of the spectrum. And well simple here it's a global offering that low count minimum sort of solutions we are $5,000 or more and you can put your money there. I think we will see some small accounts go there, I think we might be some people also just tried out that maybe they are attracted to it. And so that's the list of that program. It's not going to be priced more in line with actively managed sort of mutual funds will get finalized processing and it's not going to be free, not going to be a couple of this, it's going to be more in line with typical advisory solutions. And we can do that in two-fold. Number one, it's such as way now in terms of asset minimum. And second, we have an advisor relationship as part of that offering that's a real relationship, it access to all of the things that advisor can do aligned with their tax, the tax preparation business. And so you got to think about that as sort of all in solution that happens to be deployed in one of these portfolio types. But the right component of human touch unit is quite different than an online in global offering.

Okay. Thanks for that. And then John in the TaxAct business, I just wanted to your latest thoughts on the significant increase in the standard deduction there versus putting thoughts any thoughts on how you think that's going to play out for Blucora in the industry both in terms of volumes and pricing next tax season?

Excellent. Thank you for the question there. So for us we've had a lot of time to think about what to do and how to react to and what we then hypothetical and became a new tax law. And big picture, we have been estimates that as many as 20% or so, 1040 filers would be eligible file with 1040-A or 1040 easy next year. And we shared that with potential headwind of like 2% or so in terms of paid units which we think is very manageable in both pricing and packaging. As part of that, the introduction, one of our introduction because of the basics queue proved us just point blank that people want to pay a value price for a quality experience with a guarantee. And so we expect tax of the unit to change a bit, pricing probably change a bit, proper tax reform. The way we look at it is we're going to be able to easily overcome the impact of tax law changes. We are not concerned about it, given again our range from last year and the opportunity that industry seems to have unequally around pricing power and ability to adjust pricing and packaging to react changes like that. And so also the simplified form and that sort of thing really is going to have any implications on us, that simply pushed into different schedules on essentially content what previously been in the base form itself. They can make sense. So big picture very manageable, we are on it, we got some flexibility, we are building flexibility into our got-to-market packaging than ever before, so we can be nimble. And that's one of the key buildings in the market to be nimble on the penny we see in the marketplace and where you are seeing from competitors.

Great. Thank. Lastly, just can you talk about capital allocation priorities from here given that you're one and half times that leverage tax?

Yeah. Good morning. Davinder, I can take one. So at least on the past, well couple of things, number one, we said that we would pay between $80 million to $100 million this year, we've actually done that in the second quarter. We typically paid first half not second half because of the way the cash flows come in. We both have said that when we get to that some 2.0 net leverage level, what we began to think are there things that we might want to do. We are at that point right now. And you know nothing but I would say at this point, there are thing can began to look at whether it's internal investment or even some of kind of long term capital to shareholders. How we landed on it, well the first point, but something that we are looking as we are building to the back half of the year begin to think about next year.

Alright, thank you.

Thank you. And we do have a follow-up question from the line Dan Kurnos with Benchmark Company. Your line is now open. Mr. Kurnos, you like in on open. If your phone is on mute, please unmute it. Thank you. And I am showing no further questions at this time, so I would like to return the call to management for any closing remarks.

Thank you and thanks everybody for joining today. We sure appreciate it. In closing, I simply like to thank our employees, advisors and customers that are at the heart of our success and make our business so enjoyable. We are pleased to report another strong quarter and look forward to speaking with you on our next quarter. Take care.

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