Avantax, Inc.

Third-quarter total revenue was $171.7 million, down 1% year over year. GAAP net loss was $21.8 million, or $0.46 per diluted share, while adjusted EBITDA was $7.7 million versus a loss of $800,000 a year ago. Non-GAAP net loss was $9.8 million, or $0.20 per diluted share, both 23% better than the prior year. Tax Software revenue was $6.7 million, up $1.6 million year over year, with segment operating loss of $12.5 million; Wealth Management revenue was $165 million, up 1% sequentially and down 2% year over year, with segment operating income of $27.6 million, up 74% sequentially and 41% year over year. For full year 2022, the company expects Tax Software revenue of $249 million to $250 million and segment income of $89 million to $91 million; Wealth Management revenue of $660 million to $665 million and segment income of $93 million to $95 million; consolidated revenue of $909 million to $915 million; adjusted EBITDA of $152 million to $156.5 million; GAAP net income attributable to Blucora of $36 million to $41 million, or $0.73 to $0.83 per diluted share; and non-GAAP net income of $86 million to $90.5 million, or $1.75 to $1.84 per diluted share.

Chris Walters framed the TaxAct sale as the result of a deliberate strategic process and said Cinven’s bid validated the team’s work improving products, customer care, marketing, and customer acquisition. He emphasized that the transaction lets the company become a pure-play wealth business, rebrand to Avantax, and focus on long-term sustainable growth for tax-focused financial professionals, CPAs, and their clients. His tone was confident and upbeat, repeatedly stressing momentum in the wealth business and the ability to keep executing with a sharper focus.

Marc Mehlman focused on the financial logic of the deal and the post-close capital structure. He said expected after-tax net cash proceeds are roughly $620 million, debt will be paid down, the company is targeting 2x to 3x net leverage, and capital returned to shareholders is expected to be $400 million to $450 million post-close. He also guided to 16% to 18% adjusted EBITDA margins for the go-forward business after the transition services period, and said the long-term revenue growth algorithm is 8.5% to 11% annually, with a 4% market growth assumption at the base.

Analysts pressed on why the sale was happening now, the competitiveness of the bidding process, and how much debt or cash the company would keep after the transaction. Management said they had monitored the opportunity for years, that pandemic-related volatility had made it harder to get attractive value earlier, and that Cinven’s offer reflected the business’s progress. Questions also focused on whether Avantax can maintain its tax-focused value proposition without TaxAct and whether recession risk could hurt flows; management said they do not expect degradation from the separation and believe rising rates have offset equity market weakness, keeping operating metrics strong.