Blucora, Inc.
Q3 2014 Earnings Call Transcript

Published: 3 May 2015

[Operator:]

Good day, everyone, and welcome to the Blucora First Quarter Earnings Results Conference Call. This call is being recorded. With us today from the company is Chief Executive Officer, Bill Ruckelshaus; Chief Financial Officer, Eric Emans; and Vice President, Investor Relations, Stacy Ybarra. At this time, I would like to turn the conference over to Stacy Ybarra. Please go ahead, ma'am.

[Stacy Ybarra:]

Good afternoon and welcome to Blucora's investor conference call to discuss first quarter 2015 earnings. Before we begin, I would 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 second quarter and future periods. 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 this 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 reconciliation tables and the reasons for our presentation of non-GAAP information. We've 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 Bill Ruckelshaus. Following his comments, Eric Emans will review first quarter results and second quarter outlook. Then, we'll open up the call to your questions.

[William J. Ruckelshaus:]

Thank you, Stacy. Good afternoon, everyone. Thank you for joining. Blucora results in the first quarter are highlighted by a strong season in TaxACT and continued challenges inside our Search and Content segment. My remarks today address Q1 consolidated results and forward outlook and performance trends at our three operating segments. First quarter performance for Blucora was consistent with our ingoing expectations and included some positive upside. Revenue of roughly $175 million was down $41 million or 19% versus Q1 2014. Search and Content revenue was down $48 million. E-Commerce was $2 million and TaxACT increased $9 million. Consolidated adjusted EBITDA of $51 million was down $6 million or 11% versus prior year. Search and Content declined $11 million year-on-year. E-Commerce was down $1 million. Corporate expenses expanded by $1 million. Offsetting these increases, TaxACT grew by $7 million or plus 18% versus Q1 2014. We repurchased approximately 300,000 shares of our stock for $4.4 million in Q1 at an average price of $14.21. The capital we devote to buyback is important and governed by our Board authorization and our ongoing objective to preserve capital for a new business acquisition as we continue our transformation. Our formula for creating value at Blucora is straightforward, operate and strengthen our portfolio while pursuing disciplined M&A. Through operating execution and sound capital decision making we will leverage our outsized net operating loss to maximize free cash flow. Turning to our business unit performance, starting with tax preparation. For the full season, representing expected results through Q2, we forecast TaxACT to generate approximately 13% revenue growth and 16% to 17% segment income growth over the same period last year. This marks the second consecutive year of double-digit topline growth combined with operating leverage. Over the four year period from 2011 through our forecasted full year 2015, roughly approximating the time since our acquisition, TaxACT is expected to record double-digit compound annual growth in revenue and segment income and 5% growth in e-file. 2014 consumer tax season was slow to develop and we again experienced record volumes and revenue in the final days leading up to April 2015. TaxACT’s performance this season in a hotly competitive market is a testament to the team's execution and the strength of their market position. TaxACTs formula relies upon growing filings in the DDIY market, expanding revenue per filer through pricing and ancillary products and accelerating growth in assisted prep in SMBs. On the consumer filings front, DDIY e-files were flat year on year against market that grew roughly 6%. In January, TurboTax and H&R Block introduced discounted versions of their applications for selected filer groups. TurboTax's Absolute Zero offering targeting new 1040A and 1040EZ filers with free federal and state ran through early February. H&R Block offered free federal and reduced state to $9.99 in a promotion that ran intermittently throughout the season. Our response of TaxACT was guided by two related considerations. First, our experience indicates that aggressive price-based promotions, particularly those that vary year to year, confuse customers and mostly attract less loyal, lower monetizing filers prone to switching providers one season to the next. Second, TaxACT's commitment to fair, transparent and simple pricing tiers has been a driving force for acquisition and retention of loyal, high-value customers over the years. By choosing not to match aggressive competitive offers, we anticipated TaxACT would fare less favorably with 1040A and EZ filers in the early season. And that is where we saw the significant majority of our unit shortfalls versus expectation. The largest impacted segment for us this season was free filers, particularly those new to TaxACT, a group less likely to monetize in the long run. Notwithstanding these dynamics, TaxACT was again successful in attracting new free filers and 1040A and 1040EZ, resulting in an improved mix, as lower monetizing switchers were lured away by aggressive offers. In short, competitor offers impacted our performance in the low end of the market, concentrated in the early season. In response, we found opportunities to drive value on higher-end SKUs through targeted pricing actions. TaxACT operates within a large pricing umbrella relative to competing solutions. And value-based pricing in higher-end segments this season did not diminish this advantage. TaxACT's value to filers across all segments remains the strongest in the industry. The continued focus of TaxACT is to win profitable share, while bringing more value to our returning filers. Recognized with PC Magazine Editor's Choice Award for the second consecutive year, TaxACT improved core offerings with the launch of mobile products, including TaxACT Express, our tablet app and Donation Assistant. Engagement with our customer base improved through investments and decision-support content and further leveraging social media channel. We generated more than 800,000 unique page views on our blog in 2015. And, since 2013, more than 150,000 users have signed up for our products through social media. TaxACT’s gains in assisted prep and DIY small business product lines this year expand our footprint and have contributed meaningfully to our overall momentum. In assisted prep, customer counts and monetization per customer continue to expand. SMB, while still relatively small for TaxACT, generated solid growth in customers and ARPU this season. We see significant upside and untapped opportunities in both of these markets going forward. TaxACT is a fantastic franchise led by a strong management team with decades of experience in tax preparation. This off-season, the team will innovate again in consumer tax, evolving offers; enhancing features and optimizing the marketing spend to regain filer growth with continued financial momentum. Turning to Search and Content. The Search and Content segment performed to guidance this quarter, driven by our owned and operated properties, primarily WebCrawler and HowStuffWorks. As previewed during our last call, InfoSpace is transforming under new leadership. While prudently managing core search, the team is building audience discovery and monetization solutions for content publishers, starting with HowStuffWorks and extending throughout this year to a new set of quality partners. With the acquisition of HowStuffWorks in May 2014, we saw the opportunity to promote HSW content across the InfoSpace search network, thereby introducing HowStuffWorks, the high quality intent-based audiences unique to the search channel. Actions over the last year integrating HSW, investing in their team and content, boosting monetization through direct and indirect sales and driving incremental traffic to their pages is bearing fruit. HowStuffWorks today represents 21% of our owned and operated revenue. The benefits accruing to HowStuffWorks since our acquisition are clear, growing intent-based audience that monetizes well and expands awareness, consumption and sharing of the site's educational and entertainment content. The next phase for InfoSpace will be to take these offering to a broader set of content publishers. To-date we have launched 23 new publisher sites implementing our solution. Our partners are experiencing gains in site traffic with strong engagement. We will introduce expanded features to partners this year that will further grow traffic and enhance site monetization. As expected, our legacy distribution network continues to be pressured. We are transitioning the core search network with the support and cooperation of our search engine partners while we continue to build out the new InfoSpace model. Expect further progress updates as the year moves forward. Now, turning to our E-Commerce business, Monoprice results for the quarter were in line with our expectation and a continued turnaround at Monoprice is on schedule. In a short time aboard President Bernard Luthi has assembled a strong team to execute and take Monoprice to the next level. Monoprice is a trusted brand and E-Commerce provider with a distinctive value proposition and a loyal customer base. As shared during our last call, Monoprice will build momentum in 2015, through revitalized product innovation, operational enhancements and channel development. Some updates in each area. Product innovation. Monoprice developed its following by innovating in core CE category such as cables, networking and accessories. Returning to growth means being first to market in these core categories again with new high quality products at disruptive prices. The recent USBC launch at Monoprice offers a glimpse of this approach. In early April, Monoprice was first to unveil USBC, a new specification and connector type that will eventually replace all existing USB cables. Nearly 3 billion devices with USB ports are shipped every year, making it by far the most utilized peripheral connection. USBC addresses consumer frustrations by connecting devices to a universal connector with 2x speed and 3x power improvements. Monoprice USBC solutions bring step function improvements in charge, sync and transfer speeds at unbeatable price points. Our launch beat the market, garnered media buzz and positions Monoprice as the early leader in this growth category. Operational enhancement. The recently redesigned home page at Monoprice.com improves navigation, makes finding easier for our users and highlights products with lifestyle photography. Early results from the stage rollout are positive, with time on site and new visitor conversions up meaningfully. Additional UX improvements on tap this year will further broaden our appeal to tech enthusiasts and drive gains and site level metrics. Channel development. This involves making sure our branded products are available to customers wherever they shop for tech gear. Monoprice continues to expand availability in U.S. and international online marketplaces, and in reseller and B2B sales channel. Growth in these channels is ramping, driving awareness of our products to an expanded demographic and growing our community of future loyalists. At Monoprice, I'm encouraged by the team's execution and look forward to updating on the continued progress next quarter. In conclusion, Blucora starts the year on a positive note. Leadership and operational changes made last year are beginning to pay off. With a strong balance sheet and capable team, Blucora is positioned to build value by operating effectively and allocating capital with discipline. With that I'll turn the call over to Eric for more details on our performance in the quarter.

[Eric M. Emans:]

Thanks, Bill. Jumping right into consolidated results. As Bill mentioned, consolidated revenue for the first quarter was $174.8 million, and adjusted EBITDA was $50.8 million. Non-GAAP net income was $43 million, or $1.03 per diluted share, and GAAP net income was $23.1 million, $0.55 per diluted share, both of which exceeded the top end of our guidance. We exited the first quarter with cash, cash equivalents and short-term investments of $311.4 million and net cash of $55.2 million. Turning to our first quarter segment performance, starting with Tax Preparation. Revenue for the first quarter was $81.1 million, up 12% over prior year. Segment income was $44.1 million, up 18% year-on-year and representing a segment margin of 54%. Shifting to our first half 2015 expectations, which include the full tax season, we are raising our revenue guidance to $111 million to $112 million and raising segment margin to approximately 57%. This translates to first half 2015 revenue growth of approximately 13% and segment income growth of 16% to 17% versus prior year. Tax Prep first half 2015 segment revenue growth is primarily driven by consumer ARPU gains of approximately 13% as a result of pricing actions, gains in ancillary products and an increase in paid software mix. First half 2015 assisted prep software revenue, representing approximately 11% of total Tax segment revenue, is expected to grow 15%, with balanced gains across ARPU, software units sold, e-files and e-files per unit. Assisted prep e-files through tax day one grew approximately 8%, while e-files per unit grew approximately 4%. Closing on the first half of 2015, we expect DIY small business product revenue to grow approximately 60% versus prior year. Although this is a small component of our segment revenue, it provides a glimpse into how the team is continuing to innovate, diversify and grow revenue streams. Overall, first half 2015 segment income growth of 16% to 17% reflects top line revenue gains and modest operating leverage. Before we close on the Tax Preparation segment, I want to touch briefly on our full-year 2015 expectations. We expect revenue of $116 million to $117.5 million and a segment margin of approximately 48%. Now, turning to Search and Content. Revenue for the quarter was $58.7 million, and segment income was $8.4 million, consistent with guidance. Owned and operated revenue was up 16% sequentially and now represents 34% of Search and Content revenue. HowStuffWorks revenue was up 39% sequentially. This momentum reflects improved site-wide monetization and the positive impact of promoting HowStuffWorks across our search network. Overall, owned and operated revenue increases were partially offset by a greater than expected revenue decline on Dogpile, which contributed to margin compression and is reflected in our forward guidance. As expected, distribution revenue was down 19% sequentially, primarily driven by the removal of a large distribution partner, as discussed during our last call. We expected continued but moderated attrition in the distribution network in the second quarter. With Peter Mansour's arrival at the end of last year, the InfoSpace team is focused on product and diversification initiatives that better align with our search engine customer preferences and in the long-term should stabilize quarterly sequential results and provide growth within the segment. Although we are targeting stabilization in the second half of 2015, uncertainty continues to persist given recent trends in our core search revenue streams and the early stage of our diversification initiatives. Our outlook for the second quarter is as follows

[Operator:]

Our first question comes from Gil Luria with Wedbush Securities.

[Gil B. Luria:]

Yes. Good afternoon. Thanks for taking my question. Tax season, there are almost two different tax seasons. There is the first half where Intuit was especially aggression on prices, and then the second half when their promotion ended and they did a couple of things to crack down on fraud. Would you mind breaking out the unit growth, the filing growth for TaxACT between the first and the second half? Did you actually have a positive unit growth in the second half and would you mind kind of the, at least order of magnitude of what that growth was?

[William J. Ruckelshaus:]

Yes. Hey, Gil, it's Bill. I'll start out by sort of framing the season that we saw and then pass to Eric for a little bit more of the specifics in direct response to your question, but I do think that it was, in many respects, a tale of two seasons, we certainly saw that. The early season for us was where we encountered the majority of our issues. As it relates to unit growth, we think that had a lot to do with the aggressive offers that were out there that I referred to and the second half of the season looked a lot different. And as I had mentioned, for now, I think the third consecutive year, we saw more of a backend waiting to our season. That sort of also kind of gives you a sense for the seasonality inside a TaxACT that’s evolved somewhat over the last few years. But Eric, why don't you share a little bit more specifics in terms of as it relates to prior experience with respect to early season and late season and also the current season, how that might have changed?

[Eric M. Emans:]

Yes, you bet. So just to give you a little bit of color, we definitely saw the growth in the back half of the season and saw the declines in the first half of the season. As Bill indicated, we saw a little bit of a shift to the back half part, I think that partly can be explained by just the softness in the first half.

[Gil B. Luria:]

But nothing more specific than that in terms of unit growth after the first four weeks?

[Eric M. Emans:]

Well, we don't break out exactly that way, I would say, through mid – call it past mid-February, I would say, we have about 2% unit growth and then prior to that we were down about 5% year-on-year.

[Gil B. Luria:]

Got it. And then you went through the drivers of ARPU growth, pricing, ancillary products and mix, what's the breakdown in terms of what drove that increase in ARPU this year, was that in order that you listed them, was pricing the biggest piece?

[William J. Ruckelshaus:]

Yes, hey Gil, this is Bill. So without getting into specifics, which we don't disclose, publicly the way I can answer that question that I think can give you a little bit more sense as to how this season was different is in the following way. So one of the opportunities that we had identified with the TaxACT team back when Blucora acquired TaxACT was the comparative unit economics between TaxACT and the competitors we thought was not necessarily reflective of the comparative value that TaxACT was bringing and the value that its product represented. So there was opportunities for us to carefully close the gap over time that had more to do with bringing more value to filers in the form of additional offerings that they would essentially opt into all that attach rate versus rate card changes. And for the first several seasons together, that was precisely the strategy we pursued. This past season, we complemented that with some targeted pricing actions on the rate card side. So this year, the ARPU gains were a little bit more balanced between attach and rate card. And we thought prudently so, because a vacuum had opened up in the higher end of the market segment in response to the pricing actions on behalf of the competitors, but I would say that's probably the best way we can characterize how it was different this year. It was a little bit more balanced across rate card and attach.

[Gil B. Luria:]

So then finally the aggressive pricing on basically going to zero for the first three weeks ended up being extremely successful for TurboTax. They were able to make up for it in the second half. So not unlikely that next year they will expand that and maybe have two weeks free for those simple filings for the entire season. If they do that, wouldn't you have to match them?

[William J. Ruckelshaus:]

Well, I think, certainly, we're going to be regrouping in the off-season. There’s a lot of lessons and a lot of experiments that we ran in this season and I think are going to be instructive in regrouping and coming back next season with a focus on not just financial performance but also regained filer momentum. And the TaxACT philosophy and one that I think is going to be guiding going forward, is around transparency. So we have every expectation to be very competitive, at all segments of the filing population next year and are certainly going to be anticipating how it is the competition might behave in ways you describe and in other ways, but our commitment and something we think is actually somewhat centered inside of the TaxACT brand is transparency. So we are not going to be out there claiming things in our promotions of our product that ultimately aren't true once you get to the site. We'll use that as a guideline, but certainly as we come back out next season, it would be our expectation that it will be equally if not more competitive and we will have to revisit our value proposition at all segments.

[Gil B. Luria:]

Great. Thank you.

[Operator:]

Our next question comes from Dan Kurnos with Benchmark.

[Daniel L. Kurnos:]

Great. Thanks for taking my questions. I was going to surprise you guys by asking a tax question first, although Gil just asked most of mine. So I will ask a quick just follow-up on that. Eric, you've said historically that TaxACT margins can be kind of in this maybe sustainable mid-40% range and obviously you guys have been exceeding that given the shift into deluxe that you have been taking and obviously the pricing action as well. So may be to Gil's questions, just how do we think about if it is really competitive next year and you have that kind of play maybe to get a little bit aggressive on the promo side that you can continue to accomplish sort of similar results that we have seen, how should we think about sort of that balance?

[Eric M. Emans:]

Yes, Dan this is Eric, I think the easiest way I can kind of lay this out for you is, because of how our fiscal breaks down, you really have the back half of our year that its where we're spending a lot of dollars to get ready for the next tax season. So it's good to look at it on a LTM basis off of our expected results for June 30. So if you do that and compare expected LTM given the guidance we just provided through June 30 this year and look back, we would have been at a 50% segment income margin. If you compared the comparable period the year before, we'd be actually up almost 1.5 points 1.7 points over the previous year. And so, margin continues to be paramount to, as we think about, this is a business within our portfolio and certainly we want to think long-term and grow units, but we also put profitability at the front and I think the other thing is, and which Bill touched on in his script is, as we think about gaining units and we think about our relative ARPU to the competition, we have to be very efficient and make sure that we're targeting the right kind of share that comes into our products and stick with us overtime. And I think a testament to the team is if you look at our marketing efficiency, I would say, marketing is generally a percentage of revenue over the last two seasons, we've brought it down. And in fact this year they have brought it down two points. And so, yes, we would expect to maintain similar margin profile it doesn't meant that we're not going to take the opportunity to look at all strategic opportunities, including things outside of consumer, which have been growing very nicely for us, but this business is a cash flow driver for us and we put that in the front of our conversations and why we talk about profitable growth.

[Daniel L. Kurnos:]

So to that point, Eric, and thanks for the color, not to sort of beleaguer this, but is there a thought to maybe offering retention and repeat metrics relative to your competitors, if that's sort of the strategy?

[Eric M. Emans:]

So, we'll think about it as it relates to this strategy, we're still 14 days or so out of tax season and with a lot of work to do by the team and to go offline, but, certainly, you can imagine with us being flat on share with the market growing, we did see some challenges with our retention. We came down, but we are still for the tax season in the mid-70s. And it's a favorable metric for us. But to the extent that that can give color around our long-term strategy, we'll certainly consider giving that information.

[Daniel L. Kurnos:]

Great. Thanks. So let's switch over to Search. Just briefly on the B2B business, there is a little bit of an accelerated decline. We know you called out the partner churn from last quarter. It's still a little bit lighter than we were expecting. And I'm just wondering if it really had to do more with the timing of that partner churn. Maybe, it wasn't entirely baked into all of last quarter, if there was some additional intentional churn this quarter or if there was another factor there.

[Eric M. Emans:]

No. There isn't any specific partner churn I would call out. As we've talked about, we certainly think that the declines will be more moderated. But certain segments of the business such as DLA continue to be under pressure. And the team is focused on maintaining those dollars and maneuvering any policy actions or policy changes that may occur. But, no, I mean, I think that’s here were no surprises, I would say, in distribution in the first quarter for us.

[Daniel L. Kurnos:]

Okay. So then, on O&O, there was some pretty healthy upside. About $3 million versus our estimate. And obviously that's sort of a testament to the new team, I think. I would just love to get sort of your thoughts on the breakout, the impact of increase in CPCs – we've seen that from a couple competitors, and whether or not you guys are actually seeing any impact either way from Google's focus on higher SEO rankings for mobile optimized?

[William J. Ruckelshaus:]

Yes. O&O, it was a real positive trend for us at InfoSpace. I wouldn't describe the upsides as deriving from CPC gains per se. There is mix changes going on inside of O&O, as O&O becomes more defined by new – not necessarily search-dominated initiatives like HowStuffWorks, which of course was introduced by way of an acquisition in the first half of 2014. But HowStuffWorks we like because it is a mobile site with great content that has both now search and non-search advertising schemes that we can exploit, and it gives us more diversity in that regard. So the WebCrawler performance, as Eric touched on, benefited from quality score gains certainly versus the prior year at this time that we are experiencing that were contributing to lots of the softness around WebCrawler. So where we have better quality scores, we're certainly in a better position to promote metasearch, and we saw some evidence of that in Q1.

[Daniel L. Kurnos:]

And then...

[Eric M. Emans:]

Yes. And...

[Daniel L. Kurnos:]

Sorry. Go ahead.

[Eric M. Emans:]

Yes. And to your last point, we're not expecting any significant impact to the mobile SEO changes to the search business or across any of our businesses at this point.

[Daniel L. Kurnos:]

Yes. I figured probably not, and I just wanted to get a sense from you guys, maybe, Bill or Eric, just on the broader sort of mobile strategy going forward for both segments would be helpful.

[William J. Ruckelshaus:]

Yes. I would say two things on that. One is maintaining responsive sites that are optimized in mobile is critical. And, whether it's by way of the SEO rankings that you referred to in Google or simply in terms of optimizing a user experience, when someone comes to your property through an email or other means, it's absolutely critical and at the forefront of everything that InfoSpace and Monoprice and TaxACT are thinking about as it relates to user experience. So it is a dominating metaphor as it relates to everything that they develop and the content that they render. And then the question is, which properties do we think that are – what strategies do we have inside of InfoSpace that we think us best position is that I had mentioned HowStuffWorks is a mobile property that is – I think its content renders very well in mobile and we’re seeing lots of engagement inside a smartphone and tablet. And are hoping to pursue more of that certainly as the team starts to syndicate more of its content out to social channels, I think, that by definition will bring it higher mobile mix. And we will exploit those opportunities. And then as it relates to the content publisher initiatives that I have referred to now on two consecutive calls, the content publishers and the promotions that we are doing and this audience discovery inside of search, will be mobile intensive effort just by very virtue of where it is we are acquiring the traffic and rendering the content partners experiences in mobile is critical to making sure we have a relevant solution for our partners. So, mobile is going to be a big opportunity for us going forward.

[Daniel L. Kurnos:]

Great. Thanks for all the color. I have more questions, but I will let other people ask and get back in the queue. Thank you.

[William J. Ruckelshaus:]

Sure.

[Operator:]

Our next question comes from Brian Fitzgerald with Jefferies.

[Brian P. Fitzgerald:]

Thanks, guys. Two quick ones may be. Would you characterize Monoprice as 'fully stabilized' from the West Coast dock issues, was the timing around the alleviation of pressure there kind of as expected. And then, a second one, looking back did the Affordable Care Act have any meaningful impact on the amount of filers that may have begun but ultimately abandoned the process? Any color around that would be great.

[Eric M. Emans:]

Yes. So, I will start off with the Monoprice answer. The timing I think is about as we expected as it relates to the port resolution. Certainly, the last time we were speaking to this there was not forward visibility as to the timing of the resolution and it came about fairly quickly. That didn't result in an overnight inventory surplus for us, the ships still had to make their way into the port and that took some time, but we're pleased that most of that is behind us and we've now reached more stabilization. But it was disruptive. On the ACA front, I think the answer to that is not dissimilar from what other DIY players may have said already, which is heading into the season, it wasn't our expectation that this was going to represent the headwind that might have been thought. As it relates to DIY and our experience with the vast majority, I would call, the significant majority of our filers, it simply meant one more box to check in the tax application. It was no more disruptive than that. And our pathing analysis in terms of drop-offs in and around that step, sort of reconfirmed in our mind that this did not introduce a bunch of complexity that represented a headwind.

[Brian P. Fitzgerald:]

Great. Thanks guys.

[Eric M. Emans:]

You bet.

[Operator:]

[Operator Instructions] Our next question comes from Scott Schneeberger with Oppenheimer.

[Scott A. Schneeberger:]

Thanks, good afternoon guys. Just curious with regard to – you had mentioned earlier pricing of core and tax consumer tax for the past few years since buying the company, you've doing more of the pricing opportunity at ARPU on attach and then this year you've shifted a little bit more over to the base. I would imagine you still have a lot of runway considering some of your larger peers particularly largest peer increase price in the Deluxe and the Premium tier. Would you comment on that extended runway and your cadence of capitalizing on it over coming season? Thanks.

[Eric M. Emans:]

Yes, hi, Scott it's Eric. We've taken actually pricing actions since ownership. I think a couple of years ago it was in the form of maybe more aggressive pricing throughout the season. We still have the Price Lock Guarantee so you pay what the price that you start but as we would raise the price throughout the season and those that would maybe procrastinate then would have a higher price. Last year we choose to raise the price on Deluxe and we've thought that was a fairly, it didn't impact us on the units front but drove an increased ARPU. And was – is a net win and then this year it's as we look to the competitiveness of the season and how others were pricing the market we did take opportunities where especially in the areas of filers where we thought we had the most pricing umbrella and we're still driving the best value to try some things there. And so as it relates to the runway vis-à-vis what we see thus far from the competition, yes, I think, there is a lot of runway there. But again it comes back to what Bill touched on is transparent pricing and our value proposition of driving value to end users is very important to the team and is constantly used as a barometer, as we think about that pricing umbrella. But there is plenty of room. As we recognize the competition when they go after the low-end often times, they're increasing prices on the high end, so again helping us on our pricing umbrella at the high end market.

[Scott A. Schneeberger:]

Okay. Thanks. And then another thing that we hear from your larger two peers is the discussion of their power of their marketing spend, just given their size and what they do spend and how that can be a barrier in the industry. You're comparable on their level versus, I would say, the next tier down. But what would be your comment with regard to your visibility to consumers relative to your larger peers and anything you may do with marketing with regard to spend or approach in the coming season? Thanks.

[Eric M. Emans:]

Scott, this is Eric again. Look, we obviously share of voice in the marketing space, is challenging given the two large competitors are out there as well as also there are the differences are ARPU of our product offering. So it is always a challenge to go after share of voice, and we think the team does a nice job of understanding who our filers are, understands the cost to acquire those filers and what those lifetime values are. And so I think, every year, we can be competitive, but certainly there is a share of voice. But the one thing I would say is, in particular, of one of the competitors is we love to see the spend out there in evangelizing DDIY, which we think is good for the value player in the space. So to a certain extent there is an opportunity there for us is if we are reaching out to the right filers. As far as forward-looking plans, I am not going to get into too much detail there, as we go through strategy, but I would say in the past year I think we have seen a lot of success or increased opportunity in social and I think you should plan for us to continue to capitalize on that in the future.

[Scott A. Schneeberger:]

Great. Thanks. I mean certainly I think your strategy is very successful with regard to looking at your margin. One more for me, if I could. Just following up on the ACA question before, you said basically your expectation is that, DDIY would not be too impacted adversely by ACA this year were realized. And I think that's pretty clear now observing. What do you anticipate some of the non-DDIY are saying well, there still an opportunity for next year and we think that we'll see that then? Having looked at your software, I realized, yes, it was just the one box to which we are speaking, do you think that, I guess, curious on the incremental two years, what you think, do you maintain the same view or will that view soften slightly going in the next years? Thanks.

[Eric M. Emans:]

Yes, Scott, it's Eric again. I think as Bill touched on, we shared the view of the DDIY competitors that have been out there speaking is that, for us and as we look at our filers, the significant majority of it, it was not harder than clicking a box and so really a non-event. And so I think as it relates to our existing filers and bringing them back, we would like think we have some of the smartest most savvy filers and we will get them back every year. As it relates to the overall general market, I think that ACA will continue to be an opportunity for us as well as the competition, but thus far it's playing out like we expected and we believe that it's not going to be a headwind but rather an opportunity for us in the future.

[Scott A. Schneeberger:]

Thanks guys. Best of luck.

[Eric M. Emans:]

Thanks.

[Operator:]

Our next question comes from Alex Paris with Barrington Research.

[Joseph D. Janssen:]

Hi Bill and Eric, it's actually Joe. Hey, just one question, most of my stuff has already been answered, but may be just around capital allocation, maybe more specifically around acquisitions, kind of what you're seeing out there in terms of pipeline and may be just kind of update us may be on your appetite, given the relative evaluations that you're seeing out there? Thanks.

[Unidentified Company Representative:]

Yes. As we've said before. We think that M&A can continue to be a catalyst but it's not going to be something that we're going to be pursue if we don't find the right opportunity, the right opportunity being defined as the quality business that is established and profitable in where we can structure a transaction that brings good returns for our shareholders. And so, it isn't until we find that opportunity that we’ll pursue it. And it is also safe to say that given how hot the market is even when you do find an opportunity like that, you sometimes don't get to the finish line because of the bidding environment. And so, we continue to believe that there are going to be opportunities for us down the road that are going to be a catalyst, we're committed to that strategy optimistic about it and seeing some interesting things out there that only further our confidence, but we are going to be disciplined. And we're not considering ourselves to be sort of hasty as it relates to finding to that opportunity, but we do move quickly when we do.

[Alexander P. Paris:]

Great. Thank you guys.

[William J. Ruckelshaus:]

You bet.

[Operator:]

I'm not showing any further questions at this time. I would like to turn the call back over to our host for closing remarks.

[William J. Ruckelshaus:]

Thanks everyone for joining the call.

[Operator:]

Ladies and gentlemen, that concludes today's presentation. You may now disconnect and have a wonderful day.