Q3 2019 Earnings Call
Good day, everyone and welcome to reinvest <unk> third quarter 2019 earnings Conference call. Today's call is being recorded at this time I would like to turn the conference over to Mr., Chris Curtis Division CFO and head of Investor Relations. Please go ahead Sir.
[noise] and good afternoon.
With me on todays call or Bill Krager interim Chief Executive Officer feature Rigo, Chief Financial Officer, It's Stuart Depina, Chief executive of our data and analytics business.
Our third quarter 2019 earnings press release and associated form 8-K can be found at Envestnet dotcom under the Investor Relations section.
During this conference call, we'll be discussing certain non-GAAP information, including adjusted revenue adjusted net revenue adjusted EBITDA adjusted net income and adjusted net income per share.
This information is not calculated in accordance with gap and maybe calculated differently than similar non-GAAP information for other companies.
Quantitative reconciliations of our non-GAAP financial information to the most directly comparable GAAP information appear in today's press release.
During the call. We will also be discussing certain forward looking information. These discussions are not guarantees of future performance and therefore, you should not put undue reliance on them.
These statements are subject to numerous risks and uncertainties that could cause them to differ materially from what we expect.
Please refer to our most recent SEC filings as well as our earnings press release, which are available on our website for more information on factors that could affect these matters.
This call is being webcast live and will be available for replay for one month on our website.
All remarks made during the call our current at the time of the calls and will not be updated to reflect subsequent material developments, we will take questions. After our prepared remarks, and with that I will turn the call over to bill.
Thank you Christopher and Hello, everybody.
It is just wrapped up last quarters conference call he closed saying.
I look forward to our next conversation.
Jud relish. These updates she looked forward tour sharing our results and articulating our vision.
There were important milestones for Envestnet.
Sadly today marks a different milestone.
Jordan I worked together for 20 years building a company that was sparked by vision well fueled by determination tenacity and commitment.
From the first line of code.
The first advisor.
The first account <unk>.
Climbing the steps to ring the opening bell on the New York Stock Exchange, beginning a new chapter for a founder.
Maybe the crowning achievement of a journey, but for Judd and for Envestnet.
Beginning of something much more meaningful.
Creating a company driven by the purpose to empower the delivery of better advice to millions of family.
This is important work there's the work we have been doing is what we've been committing ourselves to for nearly 20 years.
On October 3rd.
We lost Jud Bergman and his wife Mary.
The incredible life force incredible energy incredible like they both offered our world somehow.
Devastatingly ended.
It's very hard to understand what happened.
The word shocked breathtaking stunned don't describe it.
Jeff was not only a business partner he was the best friend.
Do you marry men so much to so many people.
Their reach and there you melody their grace and their impact.
Purely people feeling close to them part of them. They left people motivated they left people hopeful.
These have been a hard dark days.
But somewhere in the darkness, there is light.
Jordan married taught us this.
It's not enough to indoor there's not enough to muddle through is more important.
To be driven by purpose to have an impact to make things better and to use this very powerful world is more important to prevail.
It's important that we keep their spirit their amazing capacity for compassion and sacrificing determination all of these things motivated by purpose to achieve the vision that we have been working on.
And as we do the waste families will achieve their financial goals would be more complete.
The more secure and they'll be more meaningful.
We're incredibly committed to achieving this mission.
We have not pause.
Today, we're all in.
Our original vision was to empower financial advisors with the tools they need it to better serve their clients 20 years later, we become the operating system for financial wellness.
Helping connect consumers daily financial lives to the fulfillment of their long term goals starts with data.
Buying a cup of coffee paying a build to positing a check that data feeds a financial plan.
Planning so critical the bridge gateway for individuals to achieve their goals.
This leads towards the answers the solutions this strategy to achieve.
The planning software software informing where to invest how to invest how do when sure how to manage credit all the things that impact the consumers' ability to reach their long term goals that vision, making financial wellness. The reality is very very clear.
We believe we have all the pieces in place today.
We have work to do completing integrations.
We have work to do making it easier for advisors to leverage all that invest that brings to bear, but we're making progress we're sensing the impact of that progress and we certainly understand how this works.
Sustains growth for our company.
Let me share how in the third quarter, we've added clients expanded what we do added capabilities and solutions and integrated our offerings.
Recently, we expanded our partnership with capital group, which will leverage our client Onboarding financial planning proposal and performance <unk>.
Utilized something we call our open he N.V. network, which enabled capital groups investors to better plan and manage their American fund account.
This example of how we become more agile and opened our platform for our clients to utilize our infrastructure to meet the unique needs of their clients.
We recently welcomed our seventh and eighth major carrier to the insurance exchange.
Trains America innovator and fee based annuities and AI Jie currently the number one provider of annuities in the United States.
We're making similar progress with our credit exchange several lenders have agreed to participate with more interested.
The credit exchange has launched in today can process security based loans.
Enterprise customers are pursuing access to both of our insurance in insurance and credit exchanges and we expect steady adoption in the quarters ahead.
This is an example of how we're broadening our offerings extending out toward this vision of integrators advice.
Our recent acquisition of portfolio center is progressing well.
Since April nearly 100 of there are a clients have signed long term contracts with tamarac driving meaningful increases in subscription revenue as these firms migrate to the tamarac suite of solutions.
And our data and analytics business, we noted some weakness last quarter, primarily in our investment manager data analytics offering.
The third quarter, we have signed new clients and our renewal rates have been very high but the contract values are lower given the increased number of alternative data data sources available for investment managers.
I'm working on and making very good progress in new use cases for our data analytics offerings, including in different market research areas and those feel very promising to us, but our early and this will take time.
Just as we started the call today, we announced the strategic partnership with Equifax.
Equifax will use our aggregated data for a new credit Decisioning solution.
This will empower people to enhance their credit data has established themselves as strong candidates for loans and other services. We continue to be bullish on the opportunities and credit Decisioning and this is a very good step towards achieving the opportunities that we see ahead.
Other promising highlights and the data business include how we are elevating our aggregation solutions data powered finesse, especially with larger financial institutions. These are beginning to a gig.
Beginning to gain important adoption.
And over the course of the last 12 months, we've made significant progress improving the quality of data consumed by our wealth platform.
It's essential as the data this data fuels, our financial wellness solutions.
Earlier. This week, we made an exciting announcement about the addition of our you'll be fin apps to money guides my blocks offering these will be delivered in our client portals.
Why is so important.
Demonstrates the power of integration and what lies ahead for investment strategy with these tools advisors will help their clients answer essential questions on their networks on their cash flow.
Really helped them understand their ability to spend while remaining on track to achieve the long term goals.
These are consumer applications individuals will use them, but they are delivered by their financial advisor, but this does is connect.
In person relationship with advisors to the day to day interaction with the technologies that their their clients will use it enhances the scope of how advisors serve clients, how they help them and how they add value. We believe these blocks and the combination of Yodlee into money guide is an important innovation in financial.
Planning.
Just one example, but it's a great example of how we're making progress integrating the powerful components of the Envestnet platform.
We're committed to developing a unified advice offering that empowers families to achieve financial wellness. We have work to do but we're bidding beginning to demonstrate the power of what lies ahead.
Let me finally say this.
We reached a very important milestone this last quarter today Envestnet serves over 100000 financial advisors.
These advisors oversea, nearly 12 million investor accounts with 3.5 trillion dollars in assets on our platform.
These advisors benefit from investments wealth management platform, our data and solutions as they help clients achieve their financial goals.
Given that each advisor has the best understanding of their clients' needs and knows how best to serve them Envestnet has created an increasingly powerful network, which provides unmatched capability in scale.
It gives the advisor the amazing ability to focus on each client.
It's a very important individuals that they are.
We believe advice is essential that's been the case since we started in 1999.
Our work continues to be focused on empowering it.
I'll turn it over to Pete at this point I'll be back in a few moments with some closing comments.
Thank you Bill.
Before I review, our results and outlook.
I would be remiss not to acknowledge.
The devastating loss of a leader.
Turing to close friend.
Many of you know Jordan I worked together for the better part of the last 30 years, both at Envestnet and before.
And I will miss him tremendously.
Where's inspired by judge memory into spirit to drive us in the company forward.
Our Hearts go out to Jud marries family.
Turning to our performance for the third quarter results were very much in line, if not slightly better than anticipated.
Adjusted revenue increased 18% to $239 million compared to the third quarter of 2018.
Adjusted net revenues grew 20% to $175 million.
Recurring revenue was 96% of adjusted revenue with the components of asset based revenue and subscription based revenue.
In line with historical periods asset based revenue was 53% of adjusted revenue, but just 36% of adjusted net revenue while subscription based revenue was 43% of adjusted revenue at 59% of adjusted net revenue.
[noise], excluding the contributions from portfolio Center and money guide.
Cost of revenue grew 9% from the prior year period.
Adjusted EBITDA was 54, and a half million dollars, a 28% increase over last year.
Adjusted earnings per share was 60 cents in the third quarter, seven cents or 13% higher than the third quarter of last year.
Next I'll summarize our outlook, which is presented in fall in our earnings release.
Starting with the fourth quarter outlook comparing to the fourth quarter of 2018 adjusted revenue, we expect to be between 238, the half and $240 million, which is up about 14%.
Adjusted net revenues between 173 in $175 million, which is an increase of 16% to 17%.
Asset based revenue.
Between 128, and 128, a half million dollars or about four or 4.5% higher than last year.
And this implies an effective fee rate on our end of September assets under management and administration.
Roughly 10.1 basis points.
[noise] subscription based revenue between 104, and 104 and a half million dollars.
Approximately 34% compared to the prior year.
On an adjusted basis.
Professional services and other revenue between six and a half from $7 million.
[noise] cost of revenue, we expect to be between 73, and 73 and a half million dollars.
Adjusted EBITDA should be between 60, and $61 million, which is a 20, 629% increase compared to 2018.
Using a normalized long term effective tax rate of 25.5% and assuming approximately 54 million diluted shares outstanding.
Translates into adjusted earnings per share of 68 cents for the quarter.
For the full year 2019, we're raising the adjusted revenue range and tightening the adjusted EBITDA range relative to what we provided last quarter.
For the full year, we expect adjusted revenues to grow roughly 11% to 12% to a range of 905 and a half a $907 million.
Adjusted EBITDA to grow 20% to 23% to a range of $192 million to $193 million.
At adjusted earnings per share of about $2.14 growing approximately 11% over last year.
We ended the quarter with $72 million in cash.
And so $618 million and total debt.
During the third quarter, we amended our credit agreement expanding the capacity to $500 million.
And extending the maturity to 2024.
Well the pricing tiers are unchanged the leverage ratios for those tiers are now based on a new definition of net debt.
Our net leverage ratio at the end of the third quarter was 2.9 times EBITDA, which is consistent with our anticipated progress.
[noise] near term priorities for our cash flow continued to be investing in the business to support our long term growth, whether through acquisitions or new initiatives and paying down debt.
We expect to settle in cash the $172.5 million of convertible notes, which mature on December 15th through a combination of cash on hand at a draw from our revolver.
Thank you again for your support of Envestnet. This point I will turn it back to bill for his closing remarks.
Thank you Pete.
We're very pleased with our results for the third quarter and are well positioned to finish the year with good momentum going into year 2020.
The board, our executive team and I are aligned and focused on our for net financial wellness roadmap. We are moving forward in executing it we're committed to following through on Judge Division.
We're committed to driving continued revenue growth, while using our scale and operating leverage to grow earnings faster over the long term.
We'll be very intentional and very focused in the months ahead as I believe the stages set.
For the industry to enter its next transformational era.
From commission to fees.
From fees to planning and now from planning to integrated advice. This is powered by data powered by software and implemented through solutions across investment insurance credit and more.
This is where envestnet is positioned today and is where industry is headed tomorrow.
Investment story is about the future our focus in our work remain very much about what lies ahead.
Before I wrap up.
I do want to acknowledge.
The investment team our employees, who have been extraordinary over these last weeks.
I'm, so proud to work and partner with our team.
We are doing great things and that's very much because.
Great incredible extraordinary group of people.
Good was so proud.
Hi, I'm so proud.
And truly over these last weeks.
I've been amazed.
Thank you again for your time. This afternoon. Thank you for your supportive envestnet with that Pete.
Sure and I are happy to take your questions.
At this time, if he would like to ask a question. Please press star followed by the number one on your telephone keypad, if you're calling from a speaker phone. Please make sure you mean assumption is off to make sure you're seeing how can we check what [laughter].
I want to ask a question, we'll go first to Devin Ryan from JMP Securities. Your line is open.
[noise], Thanks, a lot and good afternoon, and I would also like to formally extend condolences to the burden family and the entire investment team here.
So so with that I guess, that's the first question would just be with.
The loss of Jud, obviously tragic.
And it sounds like after the prepared remarks at the strategy isn't expected to change much but I'm just curious.
We are kind of with the management team in place today, how the decision making process.
Change at all just given that he was such a driving force and then I also think that some believe that outside interest and the company as an acquisition opportunity could increase so I'm. Just curious how did you would kind of address that possibility today under the circumstances.
Yes, Thank you very much Devin and very much appreciate your thoughts.
You know we are a tight knit group of people and had worked together.
For years, Justin I worked together for 20 years.
Since the beginning of Envestnet and as a core team that's really supported envestnet since since our beginning Stewart depina.
Ran tamarac that was as a transaction that we did about seven years ago is really become a core leader with us as weve.
Kind of.
Established division.
Created the Roadmaps and began to execute towards this site.
Very powerful concept of creating a network in a foundation to make financial wellness. A reality, we are super focused on that we are working.
As we always have as a very collaborative.
Management team leadership team.
And we are we have a group of people here that no the industry, I think better or as well if not better than anybody else in our industry and we also have a cohesion or a culture of collaboration it's just something that is.
Weve nurtured and with fostered.
For years, and Jud led that with his vision, but then all of US really contributed to to filling in those pieces in making that vision come to life by executing those strategies and that's how we've been working that's how and we intend to work.
M&A speculation really and I have no comment at all on that.
Okay got it thank you.
Just a follow up on the data analytics you appreciate some of the commentary it sounds like you're exploring some new opportunities. So if it all possible to maybe expand a little bit about those I know.
Some of them may not be necessarily near term, but just any more detail you can provide and then in terms of some of the headwinds you mentioned last quarter like the investment management headwind is it fair to fix that could continue for the foreseeable future or is there any sign that abating.
Yeah, let's happy to happy to answer. This question you know I'm going to introduce Stewart Depina, who joined the call. This afternoon, and Stewart, who is head of tamarac and over the last year has really been a chief executive of our data and analytics business. So we asked him to join today and so what did you take that question Yeah I'll go backwards on that.
First and foremost on the data on.
The work that we're doing with investment management fees, we certainly did see some headwinds a lot of that was driven and at the tail end of 2018 going into 2019.
Well a lot of the managers were suffering if you will with from from a budgeting perspective, because the market was pretty tight and they've been slow to reengage and AFFO basis as bill good mentioned in his comments.
We have been very successful in renewing engagements that we have with those firms.
So it really is less initiative that we're trying to focus on is how do we continue to deliver.
So storms were using alternative data we are extremely bullish.
Turning to date and its use nothing investment management community, but not going up from the go to the first quarter to portion which is what are some of your other options and other opportunities that we're exploring.
We see a pretty broad opportunity in the marketplace. We were frankly, our pipelines have never been as full.
Simply because we're much more active now that we have new solutions, a new insights from our analytics us products that were introducing into the marketplace. It's too early to tell whether how successful we're gonna be we do believe we're going to be successful we actually have some.
I'm going to call it.
I'm going to call it minimal revenue.
From deals we close that are outside of the investment management community. So it's certainly an early indication, but it's one that we've got a lot of conference and a lot of that really today is worked with market research firms, who are looking to use some insights from the data that we have going to reflect on our platform I think the other area that I'd call out as it relations.
That we did announce with respect to equifax.
We certainly see from a data perspective, our credit and credit Decisioning solutions being a very.
Fruitful in a very successful channel opportunity for us.
Equifax, and we actually decided to take a different approach. If you will obviously, we've made I mentioned earlier this year of some of the challenge that we have the per vendor.
We ended up abandoning our initial approach and we decided to go down a different path and a different routes.
And we've identified the partner frankly in that regard with a completely new solution as well as into approach to how how we're going after credit so.
I would say when the great benefits that we have and ending up where we ended up was.
The Equifax sales organization and distribution channel is much greater than we would have been able to accomplish in a row.
We are extremely bullish on the prospects of it that off the opportunities that fit for business as well.
Thank you Debbie.
Yeah. Thank you appreciate it.
Alright, thank you.
And next we'll go to Peter Heckmann from Davidson Your line is open.
Hi, good afternoon, everyone. Thanks for taking my question.
Stuart just on that last point.
Can you talk a little bit about the timeline.
In terms of.
The thing.
The new solution starting to market. It maybe do some pilots do you think you can be in the market with that early in 2020.
Yeah I'll answer that question two way so it's a bit of or versioning. If you will version one will be out early 2020.
The work has been we've been working on that solution. While we just signed the agreement we've been working on that solution for but the last 30 days or we we believe that will believe but jumpstart that in the in the latter part if you want them next year.
We're not the full complement of functionality that that will have ultimately, which should we believe that will be in place by the end of 2020 .
So that will be in full full mode distribution more by 2021.
Got it got it Okay and then just as a second question.
Talk about how you anticipate seeing the contribution.
Ending exchange in the exchange exchange manifesting them in there in the results just little bit of thoughts about the ramp.
And characteristics of it.
Yes, Thank you Peter.
You know we've made a lot of progress on the insurance and credit exchange and if I can just kind of go a little deeper on what these are I think it's really helpful and understanding what the revenue opportunities will be.
These are.
We've been working closely with providers insurers and banks.
To provide solutions up through our platform to.
Our advisors.
It is not simply a marketplace is a full end and kind of execution engine that is integrated into the envestnet environment. So as an advisor goes to make a proposed create a proposal or a financial plan and indicates.
As part of the strategy strategy to utilize and insurance solution or credit solution now the inventory those solutions are sitting right inside that platform and with one click that advisor is able to execute the investments components of it the insurance component, where the credit component all that information kind of fits in our platform.
Comes back up and we'll be able to create performance reporting for that individual that looks at the holistic view of their financial picture. So.
We have a we've invested a lot from a technology standpoint to make that possible and in the third quarter. We began activity on the insurance exchange to two open accounts Oh, we have early clients, who are utilizing that insurance exchange and with promising results. So so we're.
A lot of a proposal activity, we're beginning to see the opening of accounts. We will in 2017 also begin to up to two engage credit solutions for our advisors as well as part of our.
Strategy revenue strategy really it seen in two different ways, one is that the carriers and the lenders are.
Providing a fee are supplying a fee to us to be part of our exchange and then.
The firms are utilizing a platform fee to access the solutions. It's early days I think the feedback has been very promising and when you see the totality of the capability that is here and the integration of the capability here we believe.
It will be be significant contributor.
As we ramp up in the quarters ahead.
I appreciate it that's helpful.
Thank you Peter.
And we'll go next to will come from JP Morgan Your line is open.
Good afternoon before my questions I, just wanted to have a tremendous amount of respect appreciation for judge contribution to the industry and to invest that I'm going it was a loss for the industry last month.
I think thank her question Bill.
Turns or questions.
Kind of staying focused on the data analytics team.
So could you elaborate maybe on small at a faster growing production data and analytics and you'd mentioned some new solutions insights could you elaborate on areas of the market do you find most attractive and it sounds like based on that market research potential it's about finding new distribution channels to sell current products I'd be very interested to know more about what you're thinking.
Yeah.
Yes.
I will I'm going to segment these.
Products, if you will look I'll characterize them as a solutions.
In the area of investment management solution in the.
And that we call them data insights.
We do believe that there are there is a broad market for our solutions and our insights in this in the specific segment of.
Consumer is consumer research, we do believe if there was a and again I'm on basing the belief off of the fact that there is alternative data is a relatively.
New.
Value proposition.
Beyond traditional data solutions and did it available data. So we're seeing that people, but there is a market opportunity there and we believe that the applications that we have are there certain solutions that we provide from a data that we have are a bit unique in the marketplace and we've seen some of that with the investment management. We work will continue.
True and believe that there will be true in the consumer research.
I'd say that I mean, I'm going to revert back little bit to what is our core business in our core business is really providing data aggregation solutions to large financial institutions, mostly retail banks.
We are seeing a meaningful amount of adoption and interest of our from our core clients.
For solutions that were being on the marketplace, we're adding value to the data that gathering examples of that we call it or we call it.
The.
It's a transaction detailed enrichment a lot of banks that we work with whether the credit card processors with just one or their core systems lack the capability to really refine some of the information that flows through system. So that they can use it in a more meaningful way so we but we through our data science.
Our capabilities and resources, we've actually delivered now to several banks a solution that enables us banks to frankly restricted it out other platforms. We are we leverage our analytics against it and we actually provide that information back to work those in financials banks and it's much more intelligible in its meaningful to them.
And they can actually take action on it so theres a fair amount of there's a there's a fair market there for us and again that market is one that we can tap into because we're already have relationships would love to be large financial institutions to begin with so the relationships exist. We have access to the data already we're just trying to we're trying to leverage off if you will.
The foundation that we currently have.
We're also seeing a very strong interest from the same financial institutions as well as some fintech providers and this is something that's also crossing over into our wealth.
Or wealth clients.
We are starting to see a very strong interest in our ability through again the data science capabilities that we have in the analytics capabilities that we have to provide insights down at the consumer leveling Bill mentioned in his comments.
When data slowing just on it on a on an AD hoc basis. If you will when did is flowing through financial institutions from your general spend.
A lot of consumers aren't really tracking what that's been does and so we're able to categorize some of the spends provide insights through information reports back to the consumer so they can not only know what they're spending but in addition to that because we have a vast majority of consumers that we work with rupture reducer.
Over 20 million consumers that we work with rubber data, we actually can benchmark.
Information from the consumers just to give them some insights into an item that make up a use case an example.
A millennial living in a certain geographic market.
Certain income level.
What is their spend on subscription services relative to the peer group and you can define what your peer group is there's a lot of flexibility. There. So I give you that back I give you that overview as an example to see that Theres a lot of.
Interest and I don't want to go too far to see that we generated a lot of revenue here, yet because we have ups.
Actually just starting to see a fair amount of interest and we do believe if there is.
An upside for us to continue to deploy and deliver those types of solutions that are going to generate some meaningful subscription revenue from our existing client base in that regard. So we should those things and then we'll I would just this is bill I would just add that I think we're all super excited about.
How the yield the data is pairing missing apps that are part of the money guide blocks and these are these are pieces that advisers are going extended their clients. So keeping track of.
You know through their daily interactions with their money keeping track of those steps are those.
As little data points, it kind of roll up and really.
Begin to depict spending habits and anticipate the spending habits and how that connects to somebody's financial plan.
These blocks.
Our pieces there building blocks that altogether lead up to a financial plan. So as you using these apps. You you you are beginning to plant seeds that helps in individual in shorter steps kind of fulfill the questions that we need to be answered to to create a financial plan. We think this this consumer piece powered.
Delivered by Advisors is an incredible bridge and we think it's a breakthrough and really it is a powerful example, the combination of data and software with our platform.
Great. Thanks, Thanks for walking through that.
And then.
Just on the quarter the subscription revenue came in a little bit higher than guide on what drove what drove that.
You know there was some transition from.
Some clients that that move from asset based pricing to subscription based pricing that was a little bit of what happened in them. It's just play conversion on the timing otherwise.
So.
Pretty pretty small.
Outperformance, but but as I said at the beginning slightly ahead of our expectation.
Okay, great. Thank you thanks for taking my questions.
Thank you will.
And next well go to Chris Shutler from William Blair. Your line is open.
Hi, guys.
My condolences as well.
Wanted to dig into the the Equifax announcement this afternoon.
Little bit more you just walk us through at a high level, how bad solutions going to work Im sorry, having a chance to go through the press release in detail.
And.
It sounds like you're going to be leveraging equifax for distribution. So maybe just is that right and how should we think of this is as some kind of revenue sharing agreement.
Yes, and yes. It did we're definitely going to leverage there, obviously, our clients who want to use this solution as well.
But we will leverage their distribution channel clearly from too.
Ticket the product broadly distributed they actually have an installed base.
Were there off their offering a lot of the elements from a credit decision perspective already so we see a relatively quick and easy and easier.
The option by leveraging that channel and it has a revenue share agreement that we have them.
And <unk> can you talk about the decision for this to be an exclusive deal among the credit bureaus.
Yeah honestly it was there it was their preference in the reality is we've had conversations with a different credit bureaus and there's three of them that.
Or meaningful we feel that the economics are better for us if we could.
In order to be in a position, where we can lever to distribution channel in order to be a position where.
We could frankly, they've got a very unique offering.
From a from a consumer perspective, and who they touch.
There's just more value, if you will and getting deeper richer and richer relationship by having a an exclusive relationship. It it works for us on the upside into work for them in an upside because we can.
Really go to market together and I think most of you on the phone Rick realize it clearly has.
Operations outside the United States, and given the fact that equifax as well entrenched outside of the us as well it gives us a heads up there or it gives us a lead there as well.
Alright, Thanks Stuart.
And then.
Any update on the I guess, the leadership and organizational structure as a firm <unk> at what point do you expect to be able to communicate the oh that too to investors.
Thanks, Chris is bill.
You know I so.
Of course, the phone call we received on.
On October Threerd was devastating and.
The way that our organization responded to that.
I think was incredible.
We immediately assembled the leadership team, we engaged board of directors. The board of directors met the implemented the emergency succession plan at this moment Ross Cheapen is the interim chairman of the company and I served as interim CEO of the company.
Over these last four weeks.
Management leadership myself has spent a lot of time with the directors and we're pursuing a process and it's a process that I think is important and one that I believe.
You know well continue to have us focused on the long term vision and goals of the company, we've been working Chris with our heads down focused on making sure we didnt skip a beat.
And not taking their foot off the gas we've been very focused on continuing the momentum and actually trying to make sure that marketplace understands and doesn't doubt our degree of conviction I I would expect that over the next couple of weeks months there'll be some clarification about the leadership.
The firm, but in the meantime, I don't think anyone to mistake, how how focus we are are on what we're doing.
Alright, Thanks, a lot bill.
Thank you Christopher.
And our next caller, it's Chris Donat from Sandler O'neill. Your line is open.
Good afternoon and.
Thanks for taking my questions and I lost my condolences here.
I wanted to ask one question about some changes in the marketplace in the last.
Couple of months.
Not sure I've direct impact on you, but you want to get your thoughts on bill with the online brokers going to zero commissions for their their brokerage businesses as it happens a lot of those same online brokers are also custodians for all rise.
So I'm wondering if you expect any any changes that will affect advisers and are there any potential knock on impacts to envestnet.
Yeah, I you know.
Modernization to the zero is an interesting dynamic and one that you can you could see that you could see the trend and where where they're headed and.
You know so so the statement has been made what I really believe very deeply and what we're working really hard behind is that we have to make sure that the value of advice is elevated and that the value of advice to the consumer to the American family is crystal clear. So in order to do that we had the elemer.
As to execute you have data that feeds the planning module the plant planning model Stakes. The answers the chances are executed across a broad set of solutions.
Integrated from investments to insurance the credit data is loaded backup and we're presenting a holistic performance reports of the client understands their wealth better than ever before that is much different than a zero fee trade and so we're where we believe that there's a there's there's a vast difference between a commission.
For no cost and the value of advice that helps a person to chief financial plan that you know that that hasn't changed if anything that is probably.
Focused advisors on making sure that they're they're providing differentiated advice and in that case, we clearly are advantaged.
Got it thanks, Bill and then.
For Pete just wanted to clarify vacation.
In the dating back to release looks like there's 18.8 billion that was reclassified to.
Just got reclassification is that part of the reason why the the fee rates going to likely take up to 10.1 basis points in other words, you've got a.
Whatever the mix of numerator and denominator going there or is there something factoring into the higher right. That's a that's a lot of what's going on there's a little bit of mix and sales too.
But that's a bigger driver its.
We've talked over the years about how conversions will have an impact on fee rates.
When we bring out a lot of reporting assets there may be a step down.
This is similar dynamic in the opposite way where we.
The revenue is the same for the most part problem.
Asset base to subscription based but since its out of the asset based.
What is a low effective fee rate.
Then the average if the whole thing goes up a little bit. So that's that's exactly what's going on most mark.
Got it okay. Thanks very much.
Thank you Chris.
And we'll go next to surrender sign from Jefferies. Your line is open.
Thank you for taking my questions.
I apologize if I missed this but.
Did you.
Desegregate the subscription licensing into its different components of the growth rates within tamarac in the enterprise business.
No that it's all aggregated in our reporting and in our guidance.
I guess any color on the quarter and how those sub segments trend.
I mean again not about much to talk about the distinction I would say to characterize it as inline with what we have expected and what we've experienced is probably the best expectation to take away from it.
Fair enough.
And then following on from that.
It looks like there's a bit of a dip in the professional services revenues.
I guess can be the lowest in in a number of quarters at this point.
Any color that you can provide there in terms of.
In the past you guys have talked about that is a leading indicator for.
Possibly subscription revenues and those kinds of things.
Right right. So there's two parts to that really one is that.
We had mentioned earlier that we're again slightly ahead on subs overall compared to the guide from last time, that's another element of.
Over I think the quarters, starting last year, we talked about an expectation that.
Greasing professional services or P.S. revenue.
Would the increasing which would lead to higher subscriptions later as those products are adopted I think that's part of what we're seeing there, but there's a a fighter distinction with professional services, where as we are focused more on the wealth market.
We are we are.
It's.
Within data analytics.
Professional services revenue.
Is harder to put into into contracts and so.
But as we've gotta look to further integrate and connect the business units as we've talked about this year.
Our expectation is that professional services I would not be growing as fast as in previous years.
Actually it was a pretty big quarter last year for P.S. So.
Not surprising that we're seeing this go down for.
Kind of that business rationale as well.
And turned right. This is bill I, just I just wouldn't read into that that's a kind of a slow in the in the conversion pipeline at all I think it's just a our emphasis on it and how were onboarding certain clients in the wealth market.
Understood that's helpful and then.
Turning to the asset base business.
The U.M. advisor count was relatively flat quarter over quarter.
The thing that you guys you're seeing there.
It's a little it seems like there was a little bit of counterintuitive in that we've looked at last quarter and.
Gross sales were.
Despite all the volatility grow sales held up.
Redemption.
Pretty low to mid rise or to this I'm sorry go ahead.
Yes, I was going to say, it's more to do with the reclassified classes.
Asset base business to subscription those advisors also move yes. So that was that it was that that was up a decent sized advisor team over or from that left and so the.
The number was overcome by new advisors this quarter, but but it's really has everything to do with the reclass.
Okay.
I'll Oh.
I'll follow up on that offline so.
Turning to thanks.
Okay. Thanks, guys.
Thank you.
And we'll go next to him Miller from Buckingham Richard Research. Your line is open.
Hi, Thanks for taking my questions just had one following up on kind of the movement to zero cost trades, you know we've read a bit about I guess in that scenario the potential for maybe an increase in breakaway advisors from the wire House channel I was wondering if you had a view on that and then just as we think about a scenario, where we continue to see general cost.
On the industry.
I guess, how do you think about maintaining.
ER stickiness of your pricing in your products.
In that scenario longer term.
Yeah. Thank you you I think you know.
The the brokerage based business that is charging that is going to maintain these commission fees is going to be under pressure, that's whether you're working at a wire, perhaps or you're working.
Ed at a broker dealer in which there are those fees are not zero today, so that that provides.
An advantage for that direct to consumer that direct retail business in some cases the are a business.
So so it will shake out.
I do believe again.
That.
This is an incremental cost.
At a focused on becomes meaningful.
But the answer to that is creating material value in the advice thats being offered and to me that is where our industry needs to focus.
And evolve so that we're providing the industry is providing.
This degree of integrated advice.
You know I use this is Mike in the comments earlier, but I think it's really important that's where we are today, that's where envestnet is todays is by bringing these pieces together, where we give the advisor the ability to to to offer this holistic integrated advice.
And the industry's headed there what what the fees to zero are going to do is accelerated.
So yeah I think that.
In isolation to look at a incremental cost.
You know there may be some transitions I don't believe it will be meaningful transition I believe what will be meaningful is advisors acceleration around this integrated a holistic.
Value focused advice.
That's helpful. Thank you very much.
All right. Thank you.
And if you had a question again, please press star followed by the number one on your telephone keypad little bit next to that Patrick O'shaughnessy from Raymond James.
Hey, good afternoon, and my condolences as well maybe just follow up on that last question. When you think about the software the tools the products that are available to independent advisors now what's left if anything where you would say that the independent advisors disadvantaged relative to some affiliated with the large wire house or large broker dealer.
You know Patrick I don't think there's a gap I think that across the industry you know.
The elements that are becoming essential our data.
And how you integrate data into software I'd say that that the crown Jewel. If you will have the software today would be planning so planning based firms and how they're integrating that software is essential.
And then how are those that software is network to solutions and I think we're investing that has taken a lead is to build out not only a very comprehensive investment management platform. The two very rapidly expand to broaden those solutions to include insurance and include credit and how.
That as an integrated hole, so I believe that.
You know that definition of a platform or the capability.
That need to be at the fingertips up the advisor are sitting here within the Envestnet.
You know with within <unk> investments.
Product suite.
So I don't believe that Theres, a difference between the independent today and the wire where there are.
Slight differences is that in knees.
In the wires you have access to capital markets you have access to institutional services that are often.
For a whether those are trading capabilities or some other investment banking capabilities.
Those oh do not exist in the independent market, but they do in the wires.
That's very helpful. Thank you and then Stuart maybe that since you're on the call today I want to take advantage of that by asking how do you look at least competitive advantages relative to some of your didn't lose competitors I think especially in light of some of the consolidation that's taking place an aggregation landscape.
Yes so.
It's clearly has been something we're focused on obviously I think most most of you on the phone node from Plaid who has been what I'd characterize as the unicorn in the aggregation space over the course of the last couple years I would say that's.
A lot of the work that we're doing in looking at what their approach.
What is.
Is something that frankly ways.
Just earlier I, just last week, we announced a new version of our developer experience, which was intended to put us on what I'd characterize is solid footing with where I'm going to be one of the.
No the things, we I believe we falling behind from a modernization standpoint, with the platform and Weve over the course last couple of years and I think that this new releases really put us frankly at least on par if not ahead of them what about.
And we and frankly that was in reaction to other approach.
That does so were.
We believe that while there are certainly competitors and a lot of the competitors being brought to market place for how much money is being invested in fintech generally broadly I should say, we're obviously looking at that we've seen from an analytic standpoint, we are.
Sure I know what are standpoint, it I'm not aware of.
I would not see that we have it a that work that we're behind there I frankly think the overhead there were lot of disgusted with respect that we have such a broader universe of data that we have accessible to us. We also use and have a legacy now that we've built up a pretty strong enriched data science team, which is why frankly, if you look at.
The offerings of the competitors Bremer marketplace, they're not leveraging alternative due to the wheel.
So I think that we're ahead there.
Great. Thank you very much.
Now I'd like to turn it back to build krager for closing remarks.
I want to thank everybody.
For attending today's call, but also you know after hearing the news Jed for the outpouring of support it's really meaningful to us it truly was helpful.
An incredibly meaningful so thank you so much.
Thank you all for your questions today, and I'm looking forward to our next conversation. Thank you.
And that does conclude our call for today. Thank you for your participation you may now.