Avantax, Inc. (AVTA) Q4 2022 Earnings Call Transcript

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Avantax, Inc. (NASDAQ:AVTA) Q4 2022 Earnings Conference Call February 16, 2023 8:30 AM ET

Company Participants

Dee Littrell - IR

Chris Walters - CEO

Marc Mehlman - CFO

Conference Call Participants

Josh Siegler - Cantor Fitzgerald

Daniel Kurnos - The Benchmark Company

Alex Paris - Barrington Research


Hello and invited to nan Avantax Fourth Quarter 2022 Earnings Conference Call. All participants will beryllium successful listen-only mode. [Operator Instructions]. After today's presentation, location will beryllium an opportunity to inquire questions. [Operator Instructions]. Please statement this arena is being recorded.

I would now for illustration to move nan convention complete to Dee Littrell. Please spell ahead.

Dee Littrell

Thank you, and invited everyone to nan Avantax 4th fourth 2022 net convention call. On Wednesday afternoon, pursuing marketplace close, we posted our net merchandise and supplemental accusation connected nan investor relations conception of our website, astatine

I americium joined coming by Chris Walters, Chief Executive Officer, and Marc Mehlman, Chief Financial Officer.

Before we begin, fto maine punctual everyone that today’s chat contains forward-looking statements that speak only arsenic of nan existent date. As such, they see risks and uncertainties, and existent results and events could disagree materially from our existent expectations. Please mention to our property merchandise and our SEC filings, including our astir caller Form 10-K and Form 10-Q, for much accusation connected immoderate of these circumstantial risks and uncertainties. We presume nary responsibility to update our forward-looking statements, isolated from arsenic required by law.

We will talk some GAAP and non-GAAP financial measures today. Our net merchandise and supplemental financial accusation are disposable connected nan investor relations conception of our website astatine and see afloat reconciliations of each non-GAAP financial measurement discussed to nan nearest applicable GAAP measure.

With that, fto maine manus nan telephone complete to Chris.

Chris Walters

Thank you, Dee. Good morning. I americium pleased to stock our 4th fourth 2022 net results for nan first clip nether nan Avantax name. On January 26, we changed our firm sanction from Blucora to Avantax and changed our ticker awesome to AVTA, marking our adjacent measurement arsenic a pure-play wealthiness guidance company.

During our 3rd 4th net call, we shared that we had agreed to waste our TaxAct package business to an connection of Cinven for $720 million, taxable to post-closing adjustments. On December 19, we announced nan completion of nan waste of TaxAct, which positioned america to displacement our statement to bespeak our singular attraction connected continuing to turn our wealthiness guidance business and return superior to stockholders.

We successfully achieved these milestones while astatine nan aforesaid clip having a record-breaking twelvemonth successful galore of our cardinal wealthiness guidance operating metrics. I would for illustration to convey each of our financial professionals, labor and Board members for their contributions to realizing these accomplishments.

As noted, we person made important advancement connected our much focused operations and superior structure. On operations, we person begun streamlining our statement and are positioning our squad to execute our wealth-only maturation strategy. As portion of this work, we person announced a scheme to trim nan size of our Board of Directors astatine our 2023 yearly gathering and nan departure of aggregate executives whose contributions are greatly appreciated. Our squad has been aligned to present our strategical priorities of: increasing NNA by supporting existing financial professionals maturation and recruiting caller financial professionals and accounting firms; retaining existing financial professionals by providing exceptional work and tools; and erstwhile successful nan champion liking of nan client, shifting to a higher worth operation by expanding fee-based assets and continuing RIA acquisitions.

We’ve besides made targeted incremental investments to support our financial professionals and affiliated CPA firms.

On superior structure, successful January, we repurchased 460,160 shares for a full of $12.5 million. On January 24, we entered into a caller word indebtedness installation of up to a maximum main magnitude of $270 million. That besides provides for a $50 cardinal revolving in installments facility. This installation has a little liking complaint compared to our erstwhile in installments agreement, has a delayed tie characteristic that further enables america to support liking costs down and does not person important upfront costs arsenic compared to different options.

On January 27th, we announced that we commenced a modified Dutch Auction tender connection to acquisition up to $250 cardinal of our communal banal for betwixt $27 and $31 per share. This is successful summation to our approved $200 cardinal stock repurchase authorization.

Moving connected to our results for nan 4th quarter, we continued to excel crossed nan astir important indicators that we usage to measurement nan capacity of our business. First, our nett affirmative flows. We person seen nett affirmative plus flows for nan 4th consecutive quarter. In Q4, we had $495 cardinal successful nett caller assets, up $115 cardinal complete past 4th and mounting a caller grounds of $1.3 cardinal for nan business for nan trailing 12-month period.

Second, our recruiting. We besides continued to successfully enlistee financial professionals pinch complete $401 cardinal successful recently recruited assets during nan 4th quarter, finishing different grounds twelvemonth adding astir 79% much successful recruited assets than our adjacent champion year. We besides recruited 3 caller CPA firms to Avantax Planning Partners and person a beardown pipeline for 2023 successful some our independent agent trader exemplary arsenic good arsenic our employee-based RIA.

Third, our patient acquisitions. This quarter, we marked a milestone pinch 20 acquisitions completed successful 20 months, expanding full customer assets held successful our employee-based exemplary to astir $7 billion, up from $4.4 cardinal a small complete 2 years ago.

Fourth, we continued to clasp productive financial professionals. Our consistently precocious accumulation retention complaint came successful astatine 99.3% for nan quarter. Of nan financial professionals who departed during nan quarter, 90% were non-producing financial professionals pinch little than $50,000 successful rolling gross production.

Lastly, our financial master satisfaction. We regularly behaviour financial master restitution surveys to assistance america successful amended gathering our financial professionals’ needs. In nan survey, our Net Promoter Scores improved by 14 points from our Spring ’22 study and 21 points from wintertime study past year. In short, we are executing good connected our ngo to beryllium nan leader serving a organization of CPAs, taxation professionals, and tax-focused financial professionals by providing clients tax-advantaged finance solutions, innovative technologies, and tax-inclusive financial planning.

We stay focused connected extending our lead connected nan cardinal differentiated aspects of our strategy, which include, nurturing and increasing nan largest organization of tax-focused financial professionals successful nan wealthiness guidance manufacture done training, maturation communities, coaching programs and intent driven events; providing champion successful people work and support; and delivering capabilities to accelerate our financial professionals’ growth, including continuing to create finance solutions, maturation consulting, believe guidance and integer products.

In summation to these efforts, we are providing opportunities for financial professionals to activity pinch Avantax successful nan measurement that aligns pinch their priorities, which has led to quickly increasing Avantax Planning Partners, our employee-based RIA, and resulted successful a important pipeline to further turn this information of our business.

Our pure-play wealthiness guidance business is efficaciously executing connected plan, is serving our financial professionals and extremity clients good and is taking actions connected our superior building that, together, we judge will consequence successful an breathtaking early for our financial professionals, labor and shareholders.

Now, I’ll move it complete to Marc and we’ll beryllium happy to reply questions aft nan prepared remarks.

Marc Mehlman

Thank you, Chris, and bully greeting everyone. The activity complete nan past respective months, since nan announced waste of TaxAct has culminated successful this infinitesimal wherever we tin stock our financial results arsenic a standalone wealthiness business. And arsenic you tin show from our financial performance, our business is strong.

Starting pinch 4th fourth results, arsenic Chris mentioned, we are thrilled to person executed good this quarter. 2022 was a beardown twelvemonth for nan business. Avantax collapsed records for recruited assets, full nett caller assets for nan twelvemonth and nan percent of our assets successful advisory.

Now connected to 4th fourth financial results. Total gross of $172.4 cardinal was a grounds for nan business, somewhat up from nan 4th fourth of nan anterior year, up 4% versus nan 3rd 4th of 2022 and supra nan high-end of our guidance. Achieving this grounds gross fig contempt nan marketplace being down meaningfully is simply a reflection of nan favorable liking complaint situation arsenic good arsenic plus operation shifts we’ve seen successful our portfolio.

Return connected assets is up 109 ground points versus Q4 of 2021. Transaction-based committee revenues were $19 million, an summation of 7% sequentially. Year-over-year transaction-based committee revenues decreased 21% for nan 4th and 16% for afloat twelvemonth 2022.

As it is difficult to show from nan discontinued operations treatment, for easiness of comparison nan adjusted EBITDA for some continuing and discontinued operations came successful astatine $18.6 cardinal for nan 4th quarter, which is adjacent nan precocious extremity of our guidance. As for adjusted EBITDA for continuing operations, nan consequence was $25.9 cardinal pinch capacity driven by favorable gross capacity and little than expected costs successful nan quarter. Q4 is simply a higher disbursal 4th than Q3 because of nan National Conference.

GAAP nett income was $368 million, aliases $7.66 per diluted share. Included successful our GAAP nett income is simply a pretax summation connected waste of TaxAct of $472.2 million.

A fewer different specifications regarding our capacity this quarter. Our pay-out complaint successful nan 4th fourth decreased to 74.2% from 75.1% successful nan 3rd quarter, nan lowest complaint we person seen since Q1 2021, erstwhile it was 74.4%. We will spot fluctuations successful payout complaint depending upon nan attraction of transaction-based revenues, nan make-up of nett flows and nan operation of assets successful nan quarter.

We ended nan twelvemonth pinch full customer assets of $76.9 billion. Fee-based advisory assets were down 9% year-over-year to $38.3 cardinal pinch advisory assets arsenic a percent of full customer assets ending nan 4th astatine a caller precocious of 49.8%. Net flows into Advisory for nan twelvemonth were $2.9 cardinal pinch $638 cardinal successful nan 4th fourth pinch full customer assets having nett inflows of $1.3 cardinal for nan twelvemonth and $495 cardinal for nan 4th quarter.

We person driven our recently recruited assets for full-year 2022 to $1.7 cardinal versus $929 cardinal successful 2021, which was a grounds for nan business astatine that time. As shared previously, our extremity is to thrust 2% to 2.5% integrated maturation per annum via recently recruited assets.

Turning to nan equilibrium sheet, we ended nan twelvemonth pinch rate and rate equivalents of $264 cardinal and nary debt, arsenic we paid disconnected nan outstanding word indebtedness pinch proceeds from nan TaxAct sale. We person subsequently entered into a Term Loan A pinch a recently established banking group wherever we tin get up to $270 cardinal complete nan adjacent 12 months, on pinch a $50 cardinal revolver. We expect to tie $170 cardinal successful precocious February to thief money nan tender connection pinch nan remaining capacity of nan $270 word indebtedness expected to beryllium borrowed complete nan people of nan twelvemonth to chiefly money continued stock repurchases.

We were pleased pinch nan financing consequence and nan assurance our slope group showed successful our business. We judge nan liking complaint and debased costs to money are charismatic comparative to different options and supply america nan opportunity to create meaningful value. Our superior allocation priorities proceed to beryllium returning superior to shareholders pursuing nan tender connection nether nan remaining $187.5 cardinal successful our repurchase authorization, investing successful our business to substance maturation and continuing to execute connected our acquisition programme of individual financial professionals into our employee-based model. For nan mean word we expect our nett leverage ratio to beryllium betwixt 1.5 times and 2.5 times.

With that, let’s move to our afloat twelvemonth 2023 outlook. We expect afloat twelvemonth gross betwixt $750 cardinal and $758 cardinal and adjusted EBITDA of $124.5 cardinal to $135.5 million. These figures presume 4% marketplace maturation from nan extremity of 2022, pinch 1% maturation per quarter. As it relates to Fed Funds rates we proceed to leverage nan guardant curve, and astatine nan clip of finalizing our guidance, assumes 1 much 25 ground constituent hike successful March. Other factors that tin thrust gross outcomes see nan capacity of transaction income and nan timing of plus flows passim nan year.

Our guidance assumes that we will thrust meaningful costs efficiencies successful nan business. That will beryllium realized passim nan year, pinch a larger magnitude pursuing nan proviso of modulation services successful relationship pinch nan TaxAct sale, which we judge will mostly beryllium completed by nan extremity of nan 3rd 4th 2023.

With respect to GAAP nett income, we expect betwixt $25.5 cardinal and $40.1 cardinal and GAAP net per stock of $0.63 to $0.96 per share. We are anticipating betwixt $7.8 cardinal and $14.5 cardinal successful adjusted disbursal items relating to nan costs of delivering costs savings, imaginable proxy matters and different one-time items related to nan waste of TaxAct.

Lastly, we person assumed betwixt $12.7 cardinal and $13.5 cardinal successful liking expense, astir $14 cardinal successful depreciation and $25 cardinal successful amortization expenses for nan year.

This concludes our prepared remarks. We will now move nan telephone complete to nan usability for Q&A. Operator?

Question-and-Answer Session


Thank you very much. We will now statesman nan question-and-answer session. [Operator Instructions]. Today's first mobility comes from Josh Siegler pinch Cantor Fitzgerald. Please spell ahead.

Josh Siegler

Yes. Hi, bully morning. Thanks for taking my question. Now that guidance has a sole attraction connected nan wealthiness guidance business, what are you astir excited astir for allocating much of your clip to? And really are you reasoning astir increasing your competitory advantage complete this adjacent year?

Chris Walters

Interesting, this is really a continuation of a strategy that's been moving incredibly well. And truthful we are intensely focused connected executing that. As you know, from a clip and attraction perspective, we're delivering PSAs done precocious this year. And truthful location still is clip associated pinch supporting nan taxation activism. That said nan elements of our strategy that person been moving person been a important betterment successful our business improvement efforts. This is recruiting caller financial professionals to nan level wherever we're mounting records.

So we're excited to thin into that moreover more. Delivering exceptional customer service, correct to our financial professionals to beryllium nan champion easy partner for them to activity with. And arsenic we make things easier for them, they person much clip to turn their business, and past supporting them successful their maturation efforts successful each measurement from maturation consulting to immoderate of nan phenomenal events that we put connected that are training and acquisition and such. And we are really focused successful each those areas.

And finally, technology, correct exertion and devices that amended their efficiency. And so, arsenic we talked astir that accrued focus, right, we're spending clip successful each 1 of those areas, arsenic we person complete nan past fewer years.

Josh Siegler

Understood, that's adjuvant color. Thank you very much. I want to besides dial into 1 circumstantial KPI, advisory assets arsenic a percent of full assets continued to inclination positively passim nan twelvemonth pinch patient nett caller assets, contempt antagonistic marketplace impact. Do you expect this inclination to proceed successful 2023, and advisory assets to go a larger portion of nan mix? Thanks.

Chris Walters

As we person talked astir precocious worth operation displacement being a important portion of our maturation strategy going forward, and we expect nan trends that we've seen to continue.

Josh Siegler

Got it. Thank you.


The adjacent mobility comes from Dan Kurnos pinch The Benchmark Company. Please spell ahead.

Daniel Kurnos

Great, thanks. Good morning. Strong decorativeness to nan twelvemonth and congrats connected yet different sanction change, wherever I've been astir this sanction for a agelong time. Maybe conscionable 1 for Mark. First, conscionable housekeeping connected nan TSA. Is location immoderate measurement to tease retired nan economical impact, truthful we tin benignant of understand cleanable tally complaint of nan axenic play business, you know, erstwhile nan TSA is finished.

Marc Mehlman

Yeah, truthful nan TSA is expected to tally for a minimum of six months and up to 9 months. And location are a adjacent magnitude of operational support that we're providing, considering that we are truthful adjacent to taxation season. So while it's a small spot difficult to supply an nonstop number, is definite elements of those operational support elements are going to autumn disconnected sooner than others. And truthful each 4th erstwhile we study our results, we will beryllium teasing retired nan income associated pinch nan TSA from nan halfway portion of our financial performance.

So that'll make it easier for you to spot what came from underlying operations versus a TSA. But nan reality is nan immense mostly of our guidance for 2023 is coming from our underlying business versus a TSA. It is not really a meaningful impact.

Daniel Kurnos

Okay. And besides 1 other, do you person immoderate complaint ceilings connected liking rates, if for immoderate logic nan Fed decides to spell crazy?

Marc Mehlman

We do not.

Daniel Kurnos

Okay. And past -- convey you for that. And past Chris, possibly to inquire nan mobility successful a different way, you person a cleanable rate now that's straight successful benignant of FinTech land, wealthiness management. I'm funny connected benignant of 2 fronts. One, we didn't really person a chance to talk this, truthful new, is really nan conversations are going, some internally and externally. Obviously, you talked astir having a really bully pipeline connected nan CPA front. Just really nan conversations are going, now that you are rebranded and benignant of ex-TaxAct, if that has immoderate base connected benignant of nan measurement that group comprehend nan company's taxation centric focus.

Or now that you have, person received currency, if you're capable to spell retired location and say, hey, we've sewage much absorbing opportunities. And possibly that mightiness benignant of recalibrate nan measurement you're reasoning astir M&A knowing that, obviously, this is simply a benignant of a choppy marketplace correct now.

Chris Walters

Yeah, truthful fto maine return nan first one. So you tin ideate our financial professionals were really excited astir nan sanction change, right? There was immoderate complexity that was introduced complete nan past years arsenic they communicated to their extremity clients, astir nan backing and support they had and nan statement they were moving with, because immoderate of their clients would person had to look up a sanction that was not straight connected to nan sanction that is connected their statement. And truthful I deliberation location was existent enthusiasm crossed our financial master base. We deliberation that it's a awesome thing.

It besides benignant of raises nan floor plan of nan Avantax marque for prospects, conscionable fixed that it is now nan sanction of our nationalist company. And truthful I deliberation location was important enthusiasm.

As it relates to M&A and really we whitethorn deliberation astir it, we've had a really disciplined strategy complete nan past fewer years wherever we are beardown believers successful our unsocial taxation focus. And truthful arsenic we looked astatine M&A, location are a mates of superior categories that are relevant. One is our independents who want to connection pinch america successful a different way, for aggregate reasons. One, possibly they're looking for a succession solution. And we tin supply that and others are very growth-oriented and want to monetize their awesome efforts, but besides attraction their efforts solely connected maturation and time off immoderate of nan backmost agency activity to us. And truthful arsenic you know, nan 20 deals that we've done complete nan past mates of years person fallen into that category.

The 2nd area is different taxation focused financial firms, and HKFS, I think, falls into that category, right. It was a RIA that was calved retired of an accounting firm. And truthful we will proceed to look there. What we've seen is that nan multiples person been beautiful patient aliases bonzer successful those areas, for nan past mates of years. And truthful we'll proceed to show nan business successful some categories and move opportunistically.

Daniel Kurnos

Great, acknowledgment very much. Yes, I agree, Chris. Avantax is amended than Blucora. So congrats.

Chris Walters

Great. Thanks, Dan.


The adjacent mobility comes from Alex Paris pinch Barrington Research. Please spell ahead.

Alex Paris

Hi, everybody. Thanks for taking my questions. Congratulations connected a beardown decorativeness to nan twelvemonth and each that activity you sewage done. So I person a mates of questions. First, starting pinch a small spot much accusation connected nan TSA. Where does that travel successful connected nan P&L? Is it each wrong discontinued operations? Or is it -- does it travel into different statement items?

Marc Mehlman

The TSA is not going to travel successful to DisOps. It's a continuing operations portion of our business and it's going to show up connected different income line, but will beryllium portion of our adjusted EBITDA forecasts. And truthful it will beryllium divided out, but it will beryllium portion of our continuing operations financials.

Alex Paris

Okay, sewage you. And past I deliberation you said connected nan past call, that your mean word target for integrated gross maturation is 8.5% to 11%, pinch adjusted EBITDA margins of 16% to 18% erstwhile nan TSA is down you. Based connected nan guidance that you conscionable provided today, astatine nan midpoint gross maturation is 13% which is supra that and nan midpoint of nan adjusted EBITDA, target is 17.2% margin. So you're benignant of solidly successful that EBITDA range, contempt nan truth that you're still moving nan TSA. Any further colour location would beryllium helpful.

Marc Mehlman

Sure. First, connected nan gross side, nan 8.5% to 11% isn't a cleanable liking rate, benignant of slash expanse environment. And truthful what we're trying to do is return nan sound retired of sweep. And nan truth that liking rates proceed to spell up is helping to immoderate grade our gross maturation for nan year.

From a separator perspective, you've astir apt seen from immoderate of our announcements, we've already been capable to return immoderate actions arsenic it relates to our costs base. And again, arsenic a consequence of rising liking complaint environment, we find ourselves successful a position to beryllium capable to present what we judge is beardown profitability for nan business arsenic we proceed to activity done nan TSA.

Alex Paris

Great, that's helpful. And past you benignant of outlined your assumptions that underlie that guidance for nan year. There's a bigger variance successful nan nett income guidance than location is successful nan gross guidance. What would thrust nett income to nan higher extremity of that scope versus nan little extremity of that range?

Marc Mehlman

So 1 of nan parameters that I shared was really overmuch it would costs to perchance present immoderate of nan synergies arsenic good arsenic immoderate different matters that whitethorn return spot this year. And truthful what we're trying to do early connected successful '23, is to supply a wide capable lane for immoderate of nan unknowns that whitethorn play retired complete nan people of nan adjacent 12 months. Certain costs savings whitethorn costs much than others. And immoderate of nan different factors that I mentioned during nan book whitethorn costs much than others. And truthful we're trying to create conscionable capable flexibility.

Alex Paris

Okay, sewage you. Thank you. I'll return nan remainder of my questions offline. Appreciate it.


[Operator Instructions]. Pardon me, seeing nary further questions this concludes our question-and-answer session. I would for illustration to move nan convention backmost complete to Chris Walters for immoderate closing remarks.

Chris Walters

Great. Thank you each for joining america coming and for your liking successful Avantax. We will speak to you adjacent quarter.

Dee Littrell

Good bye.


The convention has now concluded. Thank you for attending today's presentation. You whitethorn now disconnect.

Editor: Naga

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