Q2 2022 Envestnet Inc Earnings Call
Greetings and welcome to envision sticky 2022 earnings conference call.
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Participants are in a listen only mode.
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I'd now like to turn the conference over to.
Your host Brian Shipman head of Investor Relations. Please proceed.
Good evening, everyone. Thank you for joining us on today's second quarter 2022 earnings call before we begin I'd like to point out that the earnings press release supplemental presentation and associated Form 10-Q can be found under the Investor Relations section of our website at <unk>.
Net dot com.
This call is being webcast live and a replay will be available for one month on our website.
During the call we will be discussing certain forward looking information.
This information is based on our current expectations and is not a guarantee of future performance.
I encourage you to review the cautionary statement on slides two and three for potential risks uncertainties and other factors that could cause actual results to differ from those expressed by the forward looking statements.
Further information can also be found in our regular SEC filings.
During this call, we will be referring to certain non-GAAP financial measures.
Please refer to the appendix in our presentation for a reconciliation of those non-GAAP financial measures to the most directly comparable GAAP measures.
The presentation is also posted to the investment Investor Relations website.
Joining me on today's call are Bill Krager, the company's Chief Executive Officer, and Peter Rigo, The company's Chief Financial Officer.
Pete will provide a company update as well as an overview of the company's second quarter 2022 results.
After our prepared remarks, we will open the call to questions.
During the Q&A. Please limit yourself to one question plus one follow up you.
You may get back into the queue. If you have additional questions with that.
I'll now turn the call over to Bill.
Thank you Brian Good evening, everyone and thank you for joining us today the.
The first half of 2022 has been an incredibly challenging environment for investors and for consumers.
As seen in poll conducted last month summarizes the current mood that's out there.
82% of Americans rated economic conditions as poor.
You all know the economic and market headlines, but I wanted to start with some things that invest net knows about the quarter. These are insights that we share with our clients, giving us the ability to support them in real time as a market like the one we've experienced unfolds.
During the quarter advisors increased cash positions, 23% quarter over quarter, and 46% year over year, that's a huge shift.
Advisors moved to more conservative positions, such as fixed income flows up 19% quarter over quarter in this category.
Investors increasingly sat on the sidelines and grew their cash positions contributions to investment accounts were down 20% quarter over quarter and do it yourself investors were even more wary, reducing contributions to their accounts by more than 30% versus <unk> <unk>.
This insight presented an opportunity for our advisors.
Consumers are absolutely feeling it as well bank balances are down 6% year over year aligning with increased consumer costs due to inflation, while consumer staple spending is down 5% year over year.
Environments like this are a testament to the essential value of what investment provides to our clients. When the operating climate is challenging we go deeper with clients. We scale ahead and support surging client demand and as we do we strengthened our foundation for revenue growth.
And operating leverage as markets normalize. This is what has happened here at investment so far this year.
We began the second quarter with $5 five trillion of assets serves we ended the quarter with just under $5 trillion market contraction, taking roughly 12% of total assets.
According to the ICI in the second quarter, the asset management industry recorded annualized net flows of negative 3%.
Given the size of assets, we serve you might conclude that we'd be in line with industry flows. However, we posted 6 billion of positive net flows during the quarter.
We continue to see very positive mix shift from <unk> to <unk>.
Our 7% annualized organic asset growth rate in the first half of 2022 was well above of our industry peer group we.
We're driving flows, albeit at a slower pace than we anticipated, but investment is growing faster than the market and we are expanding our market share as we do this.
We also executed 30% more trades in the first half of 'twenty two compared to last year, we did so with lower error rates and higher client service scores our clients depend on us as an essential partner, we are the partner supporting thousands of the leading financial advisors in the industry, providing the most.
Powerful.
A comprehensive set of capabilities operating with extraordinary scale, especially in times of market stress that we've experienced so far this year.
Deeper we're scaling when needed we are expanding share we are strengthening our financial position put very simply invest net is executing and this year. We are proving once again, we are more than up to the task.
Let's talk briefly about the second quarter results.
Adjusted revenue for the quarter grew 10% year over year to 319 million. This is slightly below forecast given the significance of the market contraction and the actual flows versus anticipated flows for the quarter.
Adjusted EBITDA was 57 million. This was ahead of guidance adjusted earnings per share was <unk> 49.
Higher than our guidance for the quarter. The number of accounts on the platform have grown impressively. Despite the conditions up to $17 9 million accounts, which is an increase of more than 300000 net new accounts in the first half of the year.
Lastly, invest net has seen positive net asset flows every month, so far in 2022, which is a powerful proof point to what we do.
We're able to demonstrate progress during these periods and we come out of times like these in a stronger position because we have a highly recurring revenue base and provide a highly essential service to our clients.
Are the market leader and this allows us to deliver at scale and that's differentiated from any other provider in our space.
Essential capabilities that we offer our clients grow market share in both good markets and challenging markets.
And we leverage powerful secular trends that drive us to meet our long term financial targets.
These secular trends are important to our outlook and growth trajectory I want to spend a minute on them.
First.
People are more worried about money than anything else in their lives and their concern is growing according to a recent lending tree study, 32% of people save money as the top source of stress in their lives and perhaps from a more promising perspective, our own research tells us that Americans that have a final.
So adviser feel significantly more in fact, three times more secure in their financial situation than those that don't.
Financial confidence and advice is a challenge for many.
But it's clear that financial advice is essential and we are making it more accessible for more people. This is a huge social wellness trend and we are best positioned to address it.
Another trend.
Planning based advice has become the industry core solution offering invest net is the leading provider of financial planning software and we believe there continues to be a significant upside as a recent study revealed that 42% of the general population do not formally plan their long term finances, but they were.
Want to.
Demand for financial planning is growing and it will continue to grow we are the market leader.
People want more connected advice and this is another secular trend.
<unk> steady this year, 60% of North American investors say, they want to consolidate their wealth in one place.
Invest that offers the most comprehensive integrated platform for advisers to offer holistic and connected advice to their clients period.
Fee based advisory has been a resilient trend for the wealth advisory industry with managed assets growing to 51% of assets served this is core to what we do we are growing faster than the market and we are expanding our share.
Data is the last secular trend we will touch on.
Demand for data services is surging and will become the core power source for companies across the economy with a projected 17% revenue CAGR between now and 2030.
<unk> is the leading provider of data in the wealth space and this quarter, we will begin to introduce our comprehensive wealth data platform to our clients, which we are exceptionally well positioned to do.
Our industry, leading essential solutions and services and these very important trends are why we are so resilient during periods like this and why we are so confident in the opportunity ahead is why our clients are leaning more and more on US and this is why our investment program will yield accelerated results.
Our results demonstrate evidence of this.
Yes.
Investment is bringing our organization and our powerful capabilities together to create a more scaled more intelligent and more valuable solution set for our clients by doing these things, we will drive sustained revenue growth and increasing margin for investors in.
In February of 2021, we announced the accelerated investment plan those investments are now fully within our expense base bolstering our product and engineering teams as well as our client engagement activities. We.
We remain confident that we are on track to hit our 2025 targets of $2 billion in revenue and 25% adjusted EBITDA margins, Let me spotlight the progress the business is making first data and analytics business.
Despite the market climate and the negative impact consumer activity has had on our verification business and even stiffer headwinds facing our asset manager research panels, our data and analytics business continues to fortify. Its foundation. An example, being the increased flow through our open banking connections.
With youth usage up over 75% quarter over quarter.
We are creating more connected data platforms to solve our clients' challenges.
2022 is a year these solutions make their way to market beginning with our wealth data platform or as we call. It the W. D P.
This brings together our data connectivity open banking aggregation enrichment and AI into a modern digital analytics rich experience.
This platform makes it easier and possible for firms and advisors to manage and create value from their own expansive dataset.
We are projecting around $35 million in annual revenue for this offering by 2025.
Inside the W. DP invest net insights engine.
The insight engine supports the growth of advisor client activity across all of our offerings.
Some data to share on our progress at.
At the end of Q2, we were publishing more than 17 million insights a day, that's up from $11 million at year end.
We've seen a 37% increase in adviser adoption <unk> and for those that have adopted the insights we see 70% increase in usage of those insights.
This is so important because it is a fundamental driver of deeper customer engagement for our clients investment now offers the leading insight to sale solution in the industry.
There is a slide in the supplemental deck that we've included that depicts the workflow and I think it's important for investors to note. This one is it drives increasing subscription and asset management revenue in support of our growth strategy.
I'll touch briefly on our wealth Tech offerings investments money guide has been a leader in financial planning for 17 years. Since money Guide was acquired we've increased market share by over nine percentage points. We expect this to continue to grow given the expansion of the capabilities in our financial planning as well as continue.
Strong demand for planning solutions.
We also have made considerable progress expanding our managed account technology to fully support.
As delivering a fully integrated experience via our tamarac platform.
Despite markets assets have grown four fold year over year with a very robust pipeline.
This effort has opened a significant market opportunity for us. It starts with managed account growth. It will be followed by additional fiduciary solutions, which we project will drive approximately $50 million in annual revenue by 2025.
As I've mentioned in previous quarters, we've recently launched our market changing client portal with a number of clients. This is a powerful rendering of the work we are doing and the impact we can have for advisors and their clients.
And.
You likely made note of our acquisition of ready to technologies. They are an innovator in cloud based delivery of revenue management and billing software ready to opens a deeper revenue opportunity across our advisory clients as well as opens and new revenue opportunity with our numerous asset manager partners.
The transaction will also create greater operating leverage as we integrate ready to into our infrastructure.
Lastly, our solutions business continues to grow impressively. Despite the market conditions. When it comes to managed accounts investment has been growing our share of market today, our share is at three 5% and growing faster than industry peers.
We expect this growth to continue and for some context on why this matters and increase of 1% and share results in incremental $100 million in net revenue for investment based on <unk> depressed ending market values.
Our tax and impact overlay assets grew 12% over the year and even more importantly accounts were up 46% demonstrating strong demand and a challenging market.
The number of accounts using invest nets direct indexing solutions has grown by 40% year over year to put this in some perspective to really expect direct indexing assets to have a 12% CAGR over the next few years.
We believe we are outpacing industry growth given the on platform position of our offering coupled with our ability to use our insight engine. These solutions contribute to managed account market share expansion and will represent strong gross net revenue contribution for us.
Yeah.
And the last is an important update our high net worth solutions have experienced impressive growth in this market. They are outpacing even 2021 flows.
This is a valuable offering for us we've worked hard to establish distribution, we see accelerating adoption in these solutions and services generate the highest revenue per asset we have at the company.
A brief note on our operating model as we modernize our offerings to our clients. We're also automating our operations, giving us the ability to scale without significantly increasing our operating costs.
When this work is fully delivered we believe it will contribute over 200 basis points and EBITDA margin by 2025.
With incremental progress towards this goal beginning to be demonstrated in the fourth quarter of this year.
These efforts range across the business from our data services portfolio accounting trading and billing as well as in our service organization.
Looking forward to 2023 and beyond the opportunity. We have continues to grow and we believe there is no firm better positioned than investment.
Challenging environments have always been a time for investnet to differentiate ourselves. We are encouraged by the feedback we are hearing by the progress, we're making and the opportunity. It is creating for US Let me turn the call over to Pete for his review of our second quarter results.
Thank you Bill.
With the backdrop of the Q2 economic environment in capital markets, we continue to demonstrate our resilience and positioning as a critical component of our clients' activities adjusted revenue for the second quarter was $319 million, which is 10% growth over last year as.
As we saw in the first quarter. The wealth segment was modestly softer than we originally expected due mainly to the volatility and drop in asset values in the capital markets impacting our monthly average daily balance accounts.
Flows continue to be positive, but lower than what we had forecast as bill mentioned industry data for the second quarter showed negative net flows while we had positive net flows in the quarter. We also continue to see mix shift from <unk> to AUM.
AUM supporting our effective fee rate expectations going forward.
The data and analytics business also experienced the pressures of challenging macro trends in the economy and marketplace. The research business, which mainly serves asset management firms based.
Based on growing challenges in Q2.
Adjusted EBITDA was $57 $1 million and adjusted earnings per share was <unk> 49.
Both EBITDA and EPS were slightly ahead of our guidance for the quarter, while Q1, and Q2 showed the largest impact this year compared to prior year in terms of operating expenses related to our investment initiatives. We are rigorously managing expenses in the aggregate demonstrated by exceeding these near term profit.
Goals, despite market driven challenges to revenue.
Before I go through the detail about our outlook for the remainder of 2022.
I'd like to add some context, we have laid out our strategy and are focused on execution. We are not wavering from the goals, we have established and fully expect to obtain the revenue and profitability targets.
Throughout our history, we have always consistently and methodically invested in our business with a long term commitment to driving growth of revenue and EBITDA we.
We believe this best serves our customers shareholders and employees.
We are now essentially 18 months into our plan to accelerate investment and further these objectives those.
Those accelerated investments are now in our cost structure and will be managed as part of our overall company expense structure.
That said, we are not standing still on the cost side in the near term we are fighting inflationary pressure with disciplined cost containment in order to protect EBITDA. During this period of market volatility.
We will continue to closely control all manageable expense items in an effort to avoid any further decline in the adjusted EBITDA margin.
Longer term the technology and operational modernization effort. We have referenced previously provides additional cost containment opportunities to achieve this goal of hitting 25% adjusted EBITDA margins by 2025.
Now turning to our outlook for the third quarter and the rest of 2022, we are updating our guidance as follows.
For the third quarter, we expect adjusted revenues to be between 301, five and $303 $5 million adjusted EBITDA to be between 51 and $53 million and adjusted EPS.
To be between 40% and 42 per share.
For the full year, we expect adjusted revenues to be between one to $5 5 billion and $1 $2 6 billion.
Adjusted EBITDA to be between $223 million and $227 million and adjusted EPS to be between $1 84.
And $1 89.
Our guidance is always does not assume any changes in the capital markets from prior quarter end and is based on market levels as of June 30.
Turning to the balance sheet, we ended June with $338 million in cash and debt of $863 million, making our net leverage ratio of approximately two two times EBITDA.
Thank you for joining the call today and your support of investment now I will turn it back to bill for his closing remarks.
Thank you Pete investment continues to execute its strategy and we are making important progress despite the difficult operating climate.
We delivered growth during the quarter that was historically difficult the underlying numbers of new accounts and platform activity evidenced the essential nature of what we do for our clients and how we are serving them more and more deeply.
Financial advice is essential.
Our research has amplified this loud and clear as I said earlier and our recent investments study Americans that have a financial adviser, where nearly three times more likely to feel financially secure than those that do not have an adviser. We believe this statement holds true across the spectrum of affluence.
I believe our results also tell an important story about our clients, we enable our clients to react respond engage and help navigate people through these times, our insights our solutions and services have fundamentally changed how our industry reacts in times like these.
When all is said and done the value that has been created by our network of advisers in a time of historic financial contraction is extraordinary and meaningful and how families achieve their financial goals. This changes People's lives.
It also up the competitive anti going forward investment is an essential partner and increasingly so as people's expectations for more digital engagement more connected integrated experience of their money and more intelligent personalized solutions grows we are delivering today and we are leading the way too.
Tomorrow going deeper and expanding our market share as we do strengthening our competitive position and leaning into the areas that secular trends will benefit us for years ahead. We are creating scale, we are creating operating leverage to drive greater profitability for our business and I am extremely encouraged with the progress that we.
We are making.
Very much we will now be happy to answer your questions.
Thank you at this time, we will be conducting a question and answer questions. If you would like to ask a question. Please press star.
One on the telephone keypad.
<unk> turn will indicate your line is in the question queue.
John Thank you.
I would like to remove yourself from the question queue.
For participants using speaker equipment, it may be necessary for you to pick up your handset before pressing the star key.
One moment, please while we poll for questions.
The first question comes from Devin Ryan from JMP Securities. Please proceed with your question.
Thank you good evening, Bill Pete and Brian how are you guys.
Good how are you.
Doing great. Thanks, So I wanted to start on the new Slide you provided I think slide 10.
You show the ramp in revenues with RA clients I thought that was interesting.
Obviously, you had the meaningful ramp in managed accounts you talk little bit about that but maybe if you can just give us a little more context on you talked about a robust pipeline.
That looks like when you talk about the differentiation.
Of that platform. The visibility you have on that kind of meaningful ramp over the next couple of years and just what type of penetration that implies or assumes for the planet.
Yeah, Thanks, Kevin and we've been.
We've got a very strong position in the market today we.
We do that in a couple of different ways, one with our tamarac platform, one with money guide and one with our managed account offering at investment and what we've done is really worked really hard over the last quarters to bring a lot of those pieces together to bring the full weight and full capacity of investment too.
Two our clients desktops, and so that work is being done it as it does we open up lots of opportunities in the door. We crack first was really around managed accounts and we're seeing.
You know pretty exceptional uptick in the flow of and usage of our managed account platform.
In the.
Our tamarac clients. So so that is about.
We really began to focus here within the last year.
And have just begun so so our penetration the growth year over year of assets is very early stage, but our pipeline is deep as we.
Gauge.
Number of tamarac firms and introduce them to what we can do from a managed account.
<unk> investment strategy standpoint.
What's most attractive I think to the IAA market.
Our value added services and things that we've focused on in the past, even including things like our direct index solution things like our tax services and tax overlays or impact platforms.
And also.
We'll begin as part of this campaign to introduce a further.
Array of fiduciary solutions, what are those our alternatives platform that we announced in conjunction with UBS.
Capital.
Its something that <unk> are very interested in our insurance platform from a fee based integrated fee based offering.
We opened the door.
The pipeline I would say is substantial.
We'll get pretty quick uptake and it'll be a revenue driver an accelerant to our AUM.
And drive good growth.
Revenue net revenue, but in many cases, both gross and net as they utilize our more value added services.
Okay.
Thanks, So much bill for the comprehensive answer there.
Follow up for <unk>.
Just on expenses a lot of moving parts I appreciate on the macro backdrop, and thats affecting kind of revenues and markets.
Are clearly moving a big ranges right now.
Can you, maybe just talk little bit about.
The cost constraints that you alluded to in the new implied expense guide.
Im just trying to think about it like what those what you're specifically doing on expenses.
Youre, helping containing expenses what are the areas of leverage.
And then also just how much is timing, meaning you can kind of pull back a bit for now, but if revenues recover that effectively all of the expenses just come right back in so I'm trying to think about how much is temporary versus what actually might be real expense savings that you're able to pull out just taken a little bit of a tighter belt here.
Yes, so there.
I would say most of what the.
The manageable component of what we're doing is.
And I don't know I don't want to necessarily say, it's temporary but it's part of an ongoing evaluation of our assessment of how the business is performing and where we can.
Invest or need to invest to I shouldn't say invest to allocate resources to ensure that we're making the progress that we need to in certain areas.
We've.
As you well know with the investments of kind of front loaded.
A couple of years or so of hiring so we were able to kind of.
Kind of tap the brakes, a little bit or manage increases in head count.
<unk>.
It gives us some availability are ongoing.
Travel as we are kind of dispersed organization throughout the country.
We're coming together in places, where relying a little more heavily on zoom for the back half of the year again, I think that was one of the areas we've talked about in the past that.
Would start coming back that went away in 2020.
We are managing how quickly vacuum come back in.
And that will continue to be assessed.
On an ongoing basis.
So those are a couple of examples, but it's things like that and Devin I would just add to Pete's answer is is all.
All of the investment dollars that we.
Kind of announced.
Early in 2021 are fully loaded into the cost base now and what we're seeing is we're transitioning this.
From this new talent.
<unk> creates the ability to unify and integrate our technology.
Create all the intelligence and insights that we're generating on a daily basis from a from a data standpoint.
<unk>.
Those are in the house and those expenses are.
On the books.
And we will manage now on those areas, where we don't have to depend as much and we can transition to a higher degree of automation from an infrastructure standpoint, and that will continue to kind of drive the leverage going forward and thats exactly the point that we're at as we reached this quarter.
Got it okay, well really helpful context, I'll leave it there thanks very much alright, thank you Devin.
Thank you ladies and gentlemen, just another reminder, if you'd like to ask a question. Please press Star then.
If you'd like to ask a question. Please press Star then.
The next question comes from Alex Kim from UBS. Please proceed with your question.
Hey, Alex how are you. Yeah go ahead, thank you very much.
Much.
I think I asked a similar question last quarter already if I remember correctly, but it's really about the pick up with take up in your personalized solutions.
So if I look at the data and thanks for giving us a little bit more data I think you also gave us accounts and personalized solutions that is very helpful. But.
And that also speaks to another question I have if I look at the last.
18 months or so you saw really nice pick up in the percentage of personalized solution as the percentage of AUM and then at the beginning of this year, it's been falling off so far this year, so meaning it seems like you're you're making some really good progress as part of your overall book end and it's coming down and if you look at the Paris.
Nice solutions accounts, which you disclosed today in the slide deck on slide 11.
Those have grown I think 13%, but total accounts have grown 23, so it seems like while you're growing.
You are not growing as fast as maybe other AUM offering so I'm just wondering.
Are you losing share or is it a pricing issue that maybe others are there other HCM solutions are selling better.
The market situations. So I know, it's along with it at a question Budd.
I would hope that youll products on your platform I do them better than competitors.
My sense is.
A very strong sense is that we're outperforming and so like I mentioned on the call our tax overlay assets are up 12%.
Year over year, but accounts are up 46%.
Our direct index is up accounts number of accounts were up 40% I think that the asset levels in our where we've seen some attrition and its not surprising.
Is in the sustainability platform from a performance standpoint.
Green is.
Underperformance.
While energy has outperformed and so the disparity in performance in that particular category.
Been pretty <unk>.
Significant but we continue to add accounts so.
I look at it this way Alex It is is that and you've probably heard me talk about it this way before.
Year to date, we've added 300000 net new accounts.
We've added significant number of accounts and these value added programs, they're all coming to us at very depressed.
Asset levels.
Market values right and then as the market releases or as the market normalizes there'll be a coiled spring, which will accelerate the growth of assets in these categories and accelerate.
By a multiple of the revenue we're generating because these are typically gross net type of solutions and so I'm very encouraged by the progress and the continued addition of accounts and advisers. We've activated who are using the solution who are bringing accounts to the platform.
And I look at it as a coiled spring dynamic accounts load onto the platform in a very depressed very difficult market environment as the market normalizes that expands and that expands.
At a faster rate given the gross net nature of these particular solutions. So I look I look at these things positively I'd just add.
That overall, when we look at <unk> 21 over <unk> 22.
We're going deeper with advisors. So advisors are.
30%.
The average at the advisor on our platform has 30% more accounts with invest net.
<unk> 'twenty two than they had in <unk> 'twenty one.
Yes.
AUM.
A.
Categories that's up.
Over 15% quarter over quarter.
Year over year.
Revenue per account and M&A is up 20% year over year. Despite the market contraction. So we are going deeper we are activating.
More advisers would be services and they are opening accounts as accounts are coming in depressed market values Thats why youre seeing that the asset levels kind of steady out and then.
I believe that.
As the market normalizes, you're going to see an accelerated growth from here.
Yes, thanks for that and thanks for the last part there I actually noticed that two of the accounts per advisor is definitely going up but that actually gets me to the second part of my question, which is the the number of advisers on the platform I think year to date I think the last two quarters.
<unk>.
I don't think thats actually seen that new history, which again.
Just is this the penetration situations at this point because it comes so so so big is it because you are really more focused on penetrating deeper versus new advisors or is it because of other advisors or are you.
Using advisors for other reasons.
No.
This is primarily acquisition.
Activity that our clients have undertaken in one of those acquisitions was a <unk>.
Existing client of investments. So we're doing some cleanup on active advisers into the last two quarters has really been that clean up Alex to get the number too.
Active <unk>.
Advisers. So in the case that that during that transition of that transaction some of those were duplicated.
We are.
We've cleaned that up and that's the that's the actual advisory account.
When I look at.
New ads, we continue to have pretty sturdy.
Pipeline of enterprises continue to convert clients even in markets like these continue to sign new tamarac clients year to date.
Very well from new contract standpoint, so we're adding we're adding relationships during this period and that decrease in advisors is really.
95% related to that that cleanup that we had to do with an acquired.
Client of ours by another client of ours.
So in short you're still pretty confident that you have plenty of room to add continue to add advisors to the platform.
Far from being penetrated with that side of the growth.
Yes, I believe so I mean, I think what we're seeing is in the RA market.
We've done a very good job of penetrating the higher end of the top.
<unk> in the country, but but I think youll see us begin to go a little deeper in the market to lower asset.
Managed asset.
And so we're focused.
On continuing to sell through that RF market to all tiers of the market with our with our packaged money guide tamarac or wealth data platform and managed account solution.
All right very good thanks.
Great. Thank you Alex.
Thank you.
Ladies and gentlemen, just one final reminder, if you'd like to ask a question Keith.
Right.
Like to ask a question please press star.
We will pause to see if there are any further questions before we compete.
Okay.
Yes.
The next question comes from Susan Anderson from Jefferies. Please proceed with your question Sir.
Thank you.
Okay.
I'd like to start with a question on the data and analytics business can you talk a little bit about the subscription revenue there I noticed you've been down quarter over quarter for two consecutive quarters. Just any color. There is there some sort of a volume component to the subscription that we should be aware of or just.
Or maybe some color on the sub segments, just help us understand what's going on there absolutely sooner so.
The business year to date has added 125, new logos.
We've added a couple of hundred thousand new users or yield per user is down.
Thats really its related very much to consumer activity and so.
That that part of our business.
Defecation that sort of part of our business is very economically related.
And in difficult economic climates, like this youre going to see less activity and that has been a headwind.
For the business. The second component is probably the primary component that is seen.
A stiff headwind I'd call it would be our research panels with asset managers and that.
Very market related as you know it's been a historically difficult first half of the year.
No.
That we had projected a growth in that segment and I would say that renewals are pushing out to later in the year and that is that is definitely.
Having an effect on our revenue growth in the subs in that in that business.
<unk>.
Those are the two primary drivers that I'd spotlight.
Got it that's helpful. And then just a clarification question on slide 10 so.
Helpful Slide.
I mean, specifically labeled illustration, but when I think about just the way the slide is presented.
And I think about the revenue from the <unk> managed accounts is that meant to be somewhat illustrative of the fact that maybe you can get to like 25% of the overall raw client revenues, there or how should I interpret that I talked about our managed account.
Objective by 2025 being an annual revenue run rate of like $50 million and I think thats going to be very achievable.
Sure.
We're very focused what we're doing is we're increasing the number of seats that increases the penetrable assets and were introducing solutions to those using our insights to help advisors.
Manage.
Those relationships and it's paying early dividends for us our pipeline is deep I emphasize that and so I would say that that between now and 2025.
We fully anticipate that we'll be generating $50 million on an annual basis.
In.
Management fees in our raw market that's the beginning.
This is a trillion three type of pool of assets that ultimately we can penetrate surrenders. So so as we get going as we onboard clients as we help them begin to open accounts on our platform.
What we're seeing is clients are going deep.
They're not just opening a few accounts, they're beginning to convert big components of their business to an outsourced model and we are.
We're definitely benefiting from that so we're early days here significant revenue opportunity huge addressable market.
Because we serve such a predominant.
Our percentage of the RIAA.
Our current marketplace and we've got the right tool set and the right people focused on it.
I am very bullish on it.
Good to hear and then one additional follow on questions related to kind of expenses.
Some markets are more broadly obviously you.
Talks about expenses being kind of front loaded they are in the run rate at this point with all of the investments that you guys have made.
How does that.
How do you think about that expense base. If the market has been really chaotic and so it's difficult to see where things going but if we were to.
Remain at depressed levels or the market doesn't rebound quickly how do you think about the investments at this point in time in terms of.
They're as Pete talked about the idea that there are some levers were.
Expenses won't come back, but what about are there areas, where you have to maybe think about.
Being more I'll say prudent or conservative with expenses or how should we think about just the actual expense base in terms of employee counts, yes, we're very aware and we're also very aware of the expectations. We've presented to investors. So we're managing the business towards that and it turns out I would say at.
At this point or February of last year, we announced a investment.
Program fully executed that.
So we went out and we now have the team that carries us into the future right. So that's a big deal.
Those expenses kind of were.
Fully in the shop by the first quarter of this year that that has cross paths with historic market downturn, which is.
Created a little more stress on our EBITA that said we are right in the zone here of when we turned the corner to generate.
EBITDA growth and restore to the 25% adjusted EBITDA level that we've spoken about in the past a lot goes into that a lot goes into that in that.
There are significant projects underway internally, where there's a high degree of automation is a high degree of.
Infrastructure automated infrastructure that will help us bring down the cost to serve and create more and more scale for the business and so those create.
A couple of hundred basis points of EBITDA margin as we as we roll them in throughout the organization and my expectation is that we'll begin to see benefit from that by year end of course, we have our eye on expenses given market climate.
We have.
Curtailed.
Incremental hiring.
As of the end of the first quarter.
We're very focused on manageable expenses.
The market continues to be at very depressed levels will be very prudent about how we work to achieve the expectations that we've set for investors and we're committed to it.
Got it and then just one more of a modeling question.
The impact of FX on your expense base in terms of the number of resources offshore.
Yeah.
It's fairly minimal.
<unk> expense base.
I'm not entirely sure I think from a cash flow perspective, it was about $1 million last quarter.
So the.
The main FX exposure is obviously the rupee the Indian rupee, where we have.
Upwards of.
$75 $80 million of overall.
Spending that goes on there.
And so.
Yes.
That's kind of the extent of it.
Okay got it.
Thanks, guys.
Yes, certainly thank you.
Thank you. The next question comes from Patrick O'shaughnessy from Raymond James.
Please go ahead Patrick.
Hey, Patrick Hey, good afternoon, I am doing well thank you.
Good.
So you spoke about some of the client related headwinds facing the yodlee business, but I'm curious how is your only doing competitively you certainly kind of revamped the offer and made it more appealing to fintech, how do you feel like it's competing out there in the marketplace.
Yes, I mean, there is I would say that anything wealth related we're winning in the in a large financial institution marketplace. We continue to win those mandates we continue to.
Enroll and build out our open banking network, we have the most connectivity there.
And you know.
Patrick it's been 125, new logos that we've signed.
This year.
So where we are.
<unk>.
I think.
What's occurring in the market is also.
Areas of specialty. So Plaid has has has the segment Amex has a segment investment has segment.
We're very strong and have a very strong reputation and.
In our high win rate in those areas, where we have the most strength that's an institutional level type.
Data needs. It is absolutely in the wealth market I am particularly.
<unk> about the wealth data platform.
There is no.
In our industry and the wealth industry.
All businesses are going to convert to the cloud.
And we have the specialty to be able to be the cloud based provider of data services to the industry that goes beyond the kind of segment of client or type of client that we serve today. It really addresses the entirety of the wealth industry because of our specialty because of our aggregation skills because of how we.
Enrich data because of the insights that we're able to surface and publish back to clients to help them go deeper with their clients and thats, a unique capability and I'm very bullish on that.
Great. Thank you and then I guess kind of building off your commentary on the wealth data platform. So as you think about some of these key growth initiatives, whether it's WTP or you are managed accounts. So youre exchanges, which of those are really kind of enterprise level sales and which are.
Sales to the individual advisors and does your.
It does whether it's enterprise versus individual advisor kind of impact the timeline to achieve your hope where revenues yes.
Yes, I think well W. DP is an institutional offering.
But if you think about a small business. They don't have cloud services either Patrick so so when we look at the market. We think there is an enormous opportunity and it's not just.
Your account data its business data and how we can kind of help them understand the valuation of their business growth of their business the opportunities they have to grow their business.
So that is.
Primarily and initially probably an enterprise sale because of the maturity of the enterprise market versus the understanding at the with a typical a firm is the value that can be created around data. So it's more of a sales job that we have to do there is a missing gap inside the.
The institutional or enterprise.
World from a data standpoint theres antiquated.
Services.
And then there is the <unk>, which is a very modern service yes.
Is there a sales to deployment.
Cycle, because you have to treat the data you have to normalize the data you have to scrub. The data you have to test the data all of that needs to take place. So there's a there's a couple of quarters is a quarter or two quarters that will have to go on at the institutional level, but.
That is that is probably primary secondarily would be the.
The <unk>.
<unk> market when it comes to like the exchanges, that's been primarily to date and institutional offering.
Investnet insurance exchanges up to $16 5 billion.
And assets that we're serving and we have a line of sight probably to $20 billion.
So we're.
That continues to grow and growing.
Getting getting adoption.
It is being very well received by our institutional clients.
Here's here's a data point that.
Get excited about and people around here.
With me because I get so excited about it but in a typical annuity process, which were kind of a platform for for that for our clients.
Not in good order or the reject rate on applications is just under 50% for the policies and annuity contracts that we've signed year to date ours is in the low single digits and 95% of the advisers, who have opened contracts have not needed internal support.
Use our technology to do it it is a game changer and as those statistics build Patrick we believe that our investment insurance exchange will become the standard at an enterprise level and we're seeing a lot of success in introducing this to more and more of our clients. So lots of feel very good about the progress and.
The quality of the progress we're making there.
Got it I appreciate all that color and then maybe one last one for me.
So this past quarter your.
Your 2023 convertible bond rolled into the current bucket on your balance sheet. How are you thinking about that as it comes due and refinancing in light of the credit markets not being particularly conducive right now.
So.
<unk>.
It's.
We have the capacity between cash on hand, and our revolver to just refund it when it comes due at this point.
We are exploring other parts of the bond markets and convertible bond markets because.
They are jumping around quite a bit we saw the implied spreads.
Really tightened even in the last week so.
We're watching it we're monitoring it right now whether we do another convert is something we're considering.
But.
We have capability and flexibility to use other.
Other structures as well so.
We're pretty comfortable with that.
Great. Thank you.
Alright, Patrick have a good night. Thank you.
Thank you ladies and gentlemen, we have reached the end of the question and answer session and I would like to turn the call back to Bruce <unk> for closing remarks. Thank you and thank you so much for joining us this evening.
Can't think of a period, where what we do is more critical and how we are investing is more relevant for our clients and their customers.
I want to thank everybody for joining Tonight hope everybody is doing well and I also just want to thank all of my Investnet colleagues for the work that you do it is important and we're making tremendous progress I look forward to speaking to everybody next quarter. Thank you very much.
Thank you very much Sir This concludes today's conference you may disconnect. Your lines at this time and thank you very much for your participation.
Okay.
Yes.
[music].
Sure.