Q4 2022 Envestnet Inc Earnings Call
Greetings and welcome to the investment fourth quarter and full year 2022 earnings conference call. At this time, all participants are in a listen only mode.
A brief question and answer session will fall follow the formal presentation.
Anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host Mr. Brian Shipman.
Investor Relations. Thank you Mr. Shipman, you may begin.
Good afternoon, everyone. Thank you for joining us on todays fourth quarter and full year 2022 earnings call before we begin I'd like to point out that our earnings press release supplemental presentation and associated Form 10-K can be found under the Investor Relations section of our web site and invest 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 and I encourage you to review the cautionary statement on slides two and three for the potential risks uncertainties and other factors that could cause actual results to differ from those expressed by.
The forward looking statements.
Further information can be found in our regular SEC filings.
During the call, we will be referring to certain non-GAAP financial measures.
These refer to the appendix in our presentation for a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures.
The presentation is also posted to the invest net investor relations website.
Joining me on today's call are Bill Krieger, our Chief Executive Officer, and Pete Darrigo, Our Chief Financial Officer, Bill and Pete will provide a company update as well as an overview of the company's fourth quarter and full year 2022 results.
After our prepared remarks, we will open the call to your questions.
During the Q&A. Please limit yourself to one question plus one follow up you may get back into the queue. If you have additional questions with that I will turn the call over to bill. Thank.
Thank you, Brian and thank you everyone for joining this evening.
2021 investment took a very deliberate stance and announced our strategy to invest in the economic opportunity inherent in our unparalleled client footprint and our breadth of services.
We knew that unlocking the revenue potential of the connected ecosystem would pay tremendous long term dividends for our shareholders.
We also knew that by doing so we would experience a setback in the short term results, but that would enable us to deliver the real value creation that is the goal of every sound investment in every resilient business.
We adhere to tell you that through an exceedingly painful year on our industry marked by stunning inflation double digit losses in both equity and fixed income markets and a dramatic shift away from an era of low capital cost the soundness of invest net vision is paying off.
And our industry, leading account growth deeper adviser penetration and the rapid expansion of our higher margin services and the realization of our vision around connected data powered advice, we are demonstrating that by delivering enhanced value to our clients, we will truly capitalize on our market share and in doing so.
We are turning the corner on both margin and revenue growth and affirming the path to our long term goals.
We have been clear.
And have delivered on our stated intentions.
Those are to maximize the investment plan, we outlined in February of 2021, creating acceleration of our organic revenue and modernizing our platform for greater operating leverage.
Driving greater engagement and usage of the platform by our clients, taking advantage of new processes and technologies to enable greater expense discipline.
And reestablishing our margin expansion in 2023, and reaffirming our commitment to 25% adjusted EBITDA margins in 2025.
Over the last year, we were there for our clients as they navigated through a period of deep market uncertainty and volatility we delivered managing increased volumes, enabling foundational account growth offering them more choices and solve the challenges of a historically difficult market.
So we have heard over and over and over again, how the evolution of investments offering is answering the strategic roadmaps.
That our clients have planned for their futures.
We are delivering the leadership our clients want from us.
With fore sight in 2021 and from a position of strength, we knew we would create greater value by leveraging that market leadership and making our business resilient in all market cycles, we invested intentionally to modernize the platform into the cloud to better integrate with our clients. We are delivering in the marketplace with our new <unk>.
<unk> portal, our data platform and connected proposal generation tool and enhanced integrations.
Also to increase our operating leverage becoming more efficient as we streamline and automate more of our processes from daily Reconciliations and service request, the compliance reporting and client conversions.
As well to accelerate high margin businesses, and our fiduciary solutions integrating and enhancing <unk>.
Into a broader set of client demanded offerings like direct indexing tax overlay RIAA managed accounts digital insurance platform and retirement services.
Besting into this moment produces an unparalleled offering coupled with extraordinary industry reach creating what we believe is an outsized long term opportunity for shareholders.
We are more essential and more embedded into the workflows of our clients. We have delivered for them, we are aligned with and addressing how they win in the next transformation in wealth management and that is the next super cycle of holistic connected advice.
We're in the right and going deeper to be an even more important part of how they grow how they expand revenue margin and enterprise value in their businesses. This is what our investments in our work.
We are accomplishing.
Our results prove the strength of our business not despite but in recognition of the environment that we're operating.
Macro headwinds were numerous in 2022.
A 60 40 portfolio was down 17% its worst performance since the year $19 37, and the NASDAQ was down more than 30% importantly.
Importantly, the U S retail asset management industry, so over 500 billion.
Net outflows across the combination of long term mutual funds and Etfs and organic growth rate last year of negative one 7% compared to a growth rate of three 5% in 2021 that is more than a 5% swing.
In the face of the market, we experienced in 2020 to our operating results signaled the progress our business is making.
Investnet posted 132 billion of total platform net flows, including 57 billion from M&A or.
Our 7% organic growth is a very strong result consider that for a cohort of large wealth management firms that have reported fourth quarter results. Thus far organic fee based asset growth fell substantially year over year to 4% on average.
And the M&A bucket Investnet posted 32 billion of AUM net flows or 9% organic growth, reflecting continued uptake of our fiduciary solutions, which typically carry more attractive fee rates then.
These results are significantly higher than the marketplace data that we track.
Our clients are valuing and using our platform more and more creating cross sell in bundled pricing opportunities for us.
Over the last year the number of platform accounts grew to more than $18 million that we serve and increase of over 5%.
M&A accounts per advisor.
Her advisor grew 9% last year.
Last year over 130 firms on the investment platform adopted a new AUM program.
Over 2000 advisers using investnet proprietary managed portfolio for the very first time.
Over 100, new solution amendments were signed across client enterprises, providing thousands and thousands of advisers with access to the cutting edge features available through investment ultimately expanding their options to better serve their clients.
We have signed several new contracts across the business from our financial planning business to data and analytics to the core invest net wealth platform. We are successfully expanding the footprint of distribution and we are importantly, going deeper by expanding our services to existing clients.
These results are beginning to drop to the bottom line.
We have turned the corner on improving profitability.
Our guidance in 2023, which is based on market as of December 31 calls for margin expansion of around 200 basis points, which would bring the margin to approximately 20% for the year.
Factors underlying this margin expansion in 2023 incorporated the anticipated pressure that we'll see on revenue growth countered by greater operating efficiency given our investments.
As well as taking tangible steps, we have to reduce expenses with laser laser sharp focus on the most important priorities.
In 2022.
Streamline the business to drive greater connectivity client responsiveness and organizational efficiency.
We see the collective benefit of all of our businesses working together and the investments made to strengthen the platform and create seamless personalized connected experiences we are driving delivery of hyper personalization, which is a critical critical secular trend for the industry. One example.
As our wealth data platform, which utilizes our data and connect.
<unk> data to our next generation proposal tool and our financial planning software and those offerings and technologies, then connect to a broadening array of portfolio solutions.
Connectivity of this environment is what drives accelerated usage and more profitable growth for our clients and for investment.
Add on to this interconnectivity the unique capability, we have here at investment to provide our clients with extraordinary insights to better serve their clients well.
We're now serving over 20 million personalized actionable insight today versus $11 million insight today last year.
We have created the foundation for investments accelerated revenue growth that we articulated two years ago. The progress we have made puts us in a competitively differentiated place just as the industry is beginning to transition to a more holistic advice model.
This would not have been possible without the investments we have made.
The resulting opportunities to drive our organic growth rate from this singer connectivity and data driven personalization are numerous and they are meaningful.
We are using our platform to help our clients move brokerage assets to managed accounts using our insights scaling and client engagement tools and streamlining workflows.
One particular client has seen an increase in their firms managed account flows by 35%.
Quarter over quarter.
Another client grew their converted assets by more than a 100% year over year after enabling this powerfully connected program.
These are just two examples of how our strategy is working and we use an actual BD example, extrapolating the conversion rates that we're seeing in asset pool size, we can model out the opportunity for investment to translate into approximately $5 million of incremental organic revenue growth this year, but that will grow substantially over.
The next years.
Other focus points, we've highlighted for you in the past the number of managed accounts on our RNA platform has grown 150% year over year and the number of advisors utilizing this offering is up 44% since last year.
The number of advisors selling overlay offerings is up 26%, while the number of accounts with overlay attached to the account is up 33% over the last year.
In our direct index offering accounts are up 30% year over year in the number of advisers have grown 48% year over year.
This is incredibly impressive growth in the face of the market, we experienced last year and demonstrates our ability to execute on our strategy.
We do anticipate asset growth new solutions to be up nearly 50% in the year ahead.
We are having similar success through key initiatives that deliver efficiencies and automation internally, we expect a lower recurring adjusted operating expenses and this is meaningful given the inflationary pressures of the macro environment. We're in and also the increasing volumes that we continue to serve.
We reduced our non people expenses in addition to lowering our head count in both U S and India on December <unk>, we completed the transition of our data and analytics operations to Tata consultancy services. As a result, we expect to realize savings this year of between $10 million to $13 million number that will increase.
Over the coming years as our account base continued to grow.
Since the beginning of 2022, we reduced our real estate footprint by 30% by the end of first quarter 'twenty, three we will be down by 45%.
The scale, we have created a scale. We believe no one can match will deliver more efficiency as our clients continue to do more on our platform here are some extraordinary examples.
In 2022, we achieved a new milestone, we processed $220 million trade orders, representing a 31% increase from 2021, all while reducing our expense to serve this critical function.
We helped our clients trade historically high volumes as we administered more portfolios in any client platform in the United States with.
We've created modernize scale that meets the critical needs of our clients.
This is the objective of any company's modernization efforts and yet it is hard to achieve this leverage is just beginning for US there is so much more to come.
Here's another example, everyday our system evaluates $233 million account details to identify instances where accounts are out of alignment with their firms investment policy rules. This is the essence of scale. The essence of service. This is the power of investment, helping our clients and truly essential way.
Once again, our volumes are way up year over year, while our cost to serve this function is down in a regulated industry. These types of unique services have inherent essential value is our clients rely on our platform more and more we have created scale and while we are also driving meaningful cost efficiency.
And how we serve them.
As part of our long term strategy, we're achieving higher operating efficiency for our business and we constantly look for new opportunities to strengthen our business model.
A missing element of the investment business model has been the ability to complete the service cycle for our clients and generate incremental ways to monetize our services.
Last quarter, we announced our partnership with <unk> Z, which will create a fully end to end digital environment that will automate and scale, our clients' engagement with our company.
The technology integration is underway and we are on track to be in the marketplace by the second half of this year.
This is a significant step forward for our clients for the industry and allows us to go deeper and enable us to pursue new revenue opportunities that are associated with custody, which we've never had the opportunity to do before.
To begin the size of that opportunity to consider that over the last three years investment has averaged over $200 billion of gross flows onto our platform in the future for every 10% of these flows we capture we believe we could earn an incremental $10 million to $20 million of revenue with very attractive margins.
During the quarter, we also strengthened our balance sheet by repurchasing the bulk of our 2023 convertible notes and issuing 2027 convertible notes, which we completed this past November this extends our maturities placing investments in a strong financial position to continue executing our growth strategy and to prudently pursue attractive.
Acquisitions and partnerships that may arise in the marketplace.
In short.
In 2021 investment we set our course in 2022, we executed on it.
<unk> accelerated several investments to modernize the platform to go deeper with our clients to drive sustained revenue growth for the company and lift the ceiling for margin growth.
We have strengthened our position in the marketplace and we are winning new mandates we've turned the corner towards the margin expansion. We are committed to despite headwinds from the global capital markets. We will continue to drive towards accelerated growth and are committed to achieving adjusted EBITDA margins of 25% in 2025.
We're executing the strategy, we set out for investors and we believe the results will create material value over the next quarters and next years ahead.
I'd now like to turn the call over to Pete who will provide details on this quarter's performance and our outlook for 2023.
Thank you Bill and good afternoon, everyone, our fourth quarter and full year results continue to demonstrate the strengths in our business model for the fourth quarter, both revenue and adjusted EBITDA were essentially in line with our guidance, although modestly impacted by a onetime customer correction with a longstanding client which was unforeseen at the time.
We gave guidance this past November .
Despite this our results were solid, especially given the market headwinds in economic environment, we faced throughout 2022.
Adjusted revenue was $292 9 million for the fourth quarter and $1 $240 million for the year adjusted EBITDA was $53 8 million for the quarter and $221 million for the full year, while adjusted EPS was <unk> 45 in Q4 and $1 86 for the full year.
2022.
Our guidance for 2023 as laid out in the earnings release and in the earnings supplemental presentation, but I want to provide some context for our outlook.
Prior year comparable quarters in the wealth segment will be difficult for at least the first half of 2023, primarily due to the impact of markets had an asset based revenue.
As asset values were coming down last year, the revenue impact flows through subsequent quarters, namely carrying through to this year.
Using market levels as of December 31, the.
The annualized nation of the 2022 market impact would present, roughly a 3% to four percentage point headwind to our 2023 growth rate relative to 2022.
While industry flows remained under pressure Investnet continues to experience market share gains and positive net flows we expect to continue to see a modest uptick in our average fee rate over the course of this year along with flows weighted more toward our <unk> solutions.
The data and analytics segment continues to face headwinds within its revenue base that we have discussed previously primarily in research. However, as this segment completes its transformation, we anticipate improved financial results later in 2023 with a robust pipeline of new and existing client firms.
Despite the near term challenges to top line growth, we expect to increase our adjusted EBITDA margin in 2023 compared to 2022 by around 200 basis points.
With that context in mind.
We expect adjusted revenues to be between $1 $240 million and $1 $260 million in 2023, adjusted EBITDA is expected to be between 242 and $252 million in 2023, reflecting the margin expansion compared to 2022, both bill and I alluded to previously.
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 December 31.
Many sell side analysts include market contributions in their models. However, we do not assume any benefit from the market in our guidance gives.
Given that we estimate that the reported revenue growth rate assumed within our guidance is lower than the consensus revenue primarily because of the difference in this assumption, which is always most pronounced early in the year.
Bill discussed a number of actions we took during 2022 to reduce our overhead given the ongoing uncertainty in the economy. We have taken additional steps this year to prudently manage expenses where possible. As a result, we are extremely confident in our ability to deliver margin expansion in 2023.
The 80 basis point, adjusted EBITDA margin increase year over year in Q4 compared to Q4 of 2021.
As evidence of the progress, we're making and supports our view that we are well positioned for increasing profitability as we head into 2023 and beyond.
Turning to the balance sheet, we ended December with $162 million in cash and debt of $938 million, making our net leverage ratio of approximately three five times EBITDA in November we completed a new five year convertible note issuance and the amount of $575 million at the same time, we have.
We purchased $300 million of our convertible notes due in 2023 and $200 million of notes due in 2025 effectively extending the maturity out to 2027.
Thank you for your support of investment before we open it up for Q&A I'll turn it back to bill for his closing remarks.
Thank you Pete.
We are succeeding in a challenging market by delivering what we've committed to our business is executing on the strategy. We presented to investors two years ago. It is clear in the operating results. We're reporting this evening.
We have further the resilience and value of the business by managing expenses alongside leveraging our investments in core capabilities and scale to propel organic growth and margin expansion.
We're doing this by modernizing the platform into the cloud, increasing our operating leverage by becoming more efficient.
Going deeper with clients and growing high margin businesses, we have turned the corner with a foundation for revenue growth and margin expansion building on what we delivered in the fourth quarter of 2022 <unk>.
Reestablishing our margin expansion in 2023, and reaffirming our goal of 25% adjusted EBITDA margins in 2025, we're doing what we said we would do.
I want to close by thanking our clients for the Trust you Amazing trust that they've put in us they recognize the value we provide for them.
For the long term and it drives us.
And finally I want to thank the investment team.
Everyday you deliver you build you innovate you are enhancing advice that drives the success of our clients and millions and millions of end consumers. It is extraordinary work and I'm very proud of it and I want to thank you now.
Now I'll hand, the call back to the operator for questions. Thank you very much.
Thank you we will now be conducting a question and answer session.
Thanks.
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Sorry, Keith.
One moment please poll for questions.
And our first question is from the line of Devin Ryan with JMP Securities. Please proceed with your question.
Great. Good afternoon. This is actually Michael Falco standing in for Devin.
Hey, Michael.
Hi, how are you guys.
Good.
Good.
I wanted to I wanted to start on the growth outlook.
The presentation you highlighted a number of areas that are going to drive an acceleration in revenue growth to your mid teens target, including retirement and insurance on the AUM side, and then well data aggregation and partnerships on the subscription side.
So im curious within that.
Do you view as maybe couple most compelling opportunities that you expect youre going to drive the bulk of that growth.
Thank you Michael.
I look at the momentum that we exited 2022 with in some of these <unk>.
Growth areas and what we've seen is a pretty significant uptick in some key areas. Let me spotlight first our high net worth offering and Thats simply as an outsourced consulting service that we work with advisors to help them serve higher net worth clients.
And.
In that area.
Our basis point range of somewhere between 2020.
20 basis points to 35 basis points.
We have more than doubled the number of advisors, who have access to that program. During 2022. Our flows are up significantly in that program as we enter 2023 anecdotally I'd just add that.
Through the through the Middle of February here, our flows are probably up 55% year over year early in the year in this solution and so it's got a very high revenue contribution and a very significant EBITDA contribution as spotlighted.
Managed accounts.
On the on the prepared remarks, and how we've greatly enhanced the assets that we serve and accounts that we serve by 150% in that category in 2022 and.
Also advisor growth of 44% last year. So we have more users utilizing that solution, which is driving from.
All of our subs base. So they are using our technology, but now we're introducing asset based product to them that they are utilizing at an increasing rate again as we turned the corner from 'twenty two to 'twenty three we exited the year with a lot of momentum and we're seeing continued uptick uptake in.
Managed accounts.
On the insurance business.
Which we spotlight there.
We were working off a small basis, we got into the year last year, but were up 500 times in managed assets in our insurance platform.
And we exited with the highest momentum of the year. So we rolled into 2023 with with pretty extraordinary momentum there, we clearly kind.
Kind of reached the corner on that business and becoming the foundational tool for annuity based especially fee.
<unk> based annuity product in the industry.
So interesting there is that 98% of the assets that we're serving today on that annuity platform their fee based annuities. That's the inverse of the entire market and it's where the industry is really wanted to get two more aligned fee based type annuity products. So we're 98% of our assets.
We grew last year, our fee base and those are more valuable they've got recurring revenue they're good for the advisor that good for the relationship that good for the manufacturer.
There are also a good a very strong contributor to invest net.
To give you a sense of kind of the opportunity pool that we believe we have and the insurance platform in 2023, we will onboard our largest clients to date.
To use and have access to the insurance platform.
<unk>.
As part of that what we do Michael as we bring the back book of insurance.
Our business onto investment we use our data engine to evaluate opportunities for advisors and so by the end of this last year. We had built that back book business up to about 27 billion. Our anticipation is that will grow by three times. This year. So we're seeing a lot of.
No.
A lot of use across the solutions growing use and growing availability to the number of advisors and then growing use of these solutions by advisors.
I think one of the headline numbers that I spend a lot of time thinking about and I cited this in the prepared remarks.
Last year and last year's market accounts per advisor were up 9% year over year. So what we set out to do was to introduce more capabilities to advisers to centralize their usage within the invest net ecosystem and that is clearly working we defied the tape.
Pretty significantly with advisor usage and advisor account growth in 2022 and that rolls in with a lot of momentum as we get to 2023.
Okay.
Great. Thanks, Bill that's excellent color and then for my follow up I. Appreciate we're very early in the journey into custody, but can you give any perspective on how youre thinking about the economics, there and then the addressable market for investing that relative to the broader customer market as a whole.
Yes, I think first off from a service standpoint, let's just kind of set the stage for everyone. What this is an integrated fully digital environment.
The investment ecosystem.
The account opening the account administration the account servicing becomes really streamlined administratively we are extracting a lot of the costs that advisors have to open in managed accounts and connecting from the front of the process all the way back through the execution and storage of the of the assets.
<unk>.
That.
<unk> is differentiated its also real time, Michael so the data that flows back and forth between the F&B backend and the investment platform will not happen in a batch process, but it will happen continuously throughout the day and that is also a differentiated capability that we're we're excited about and as we've we've introduced this too.
Our clients around certain programs that will we will rollout.
Been a really strong feedback and response from our client set.
But.
The one area I would I would really spotlight debt that we were outperformed in 2022 is cash we don't have a vehicle to monetize cash on our platform and if you look at the surrounding comps to invest net the growth and the real.
Kind of lift that those businesses experienced in 2022 is right. There. It's in cash. So we believe that given our enhanced service model. The Digitization of this this administration of accounts the real time nature of it the cost effectiveness and embeddedness of it.
We believe that we will.
Slow assets.
Beginning here in 2023 and that they will contribute to the top line and then significantly to the bottom line and I cited kind of a use case, where if you look at our gross flows on an annual basis of 200 billion.
We won't capture 100% of those we will capture the majority of those but we will capture a percentage of those and those will contribute significantly to the overall growth rate of the company from a revenue standpoint, but importantly, as well to the bottom line.
Great I'll hop back in the queue. Thank you.
Thank you Michael.
Thank you and our next question is from Surinder.
Jefferies. Please proceed with your question.
Good evening.
Hi, Bill.
A bit of a housekeeping question to start.
Can you talk about the breakdown in terms of.
The growth outlook for next year in terms of the <unk> segment versus subscription and licensing and maybe even a level deeper than that on subscription licensing and also the inorganic contribution next year.
So this is Pete.
When we think about the organic contribution of course.
Market impact has a carryover effect I mentioned, a little bit of a bit of that in the script.
That is a headwind as we said three to four percentage points, that's all going to be <unk> based.
But on the.
Basis, it's a higher percentage ranked as the three to four is on the total asset base.
Joe.
<unk>.
Yes in the range of of.
Asset based revenue for the year to be about flat, which we think translates to around 6% growth.
And then.
On the on the sub side.
It's in the range of.
Mid single digits four to six maybe.
The.
Sure.
The wealth side is growing a little bit faster than the DNA side, we talked a little bit and we've talked over the past few quarters.
Kind of working through some challenges and the headwinds which are persisting into 2023, we do expect as we leave 2023 will be at a much higher growth rate than we're entering 2023 four for all of the subs business.
That's helpful.
And then taking a bit of a longer term view here.
As you kind of work through that.
The changes to your operating structure.
Is the goal here that we should see some stability by 2025 on a run rate basis here I kind of look at the.
The differences between the GAAP and the non-GAAP earnings and that spread continues to grow.
And at that point, how should we think about your target for organic growth over the next few years, you had laid out kind of a plan at the beginning of the investment cycle.
And where do you think that you guys can get to from an organic growth perspective on a sustainable basis.
Thank you Sir this is bill.
So let me let me just take a.
<unk>.
Higher view, and then I'm going to get to the details in your question and it's worth spending just a minute on it because I think the 22 environment and just setting and into a competitive context is probably.
Important to do.
The company investment outperformed.
And account growth our net flow.
Both usage growth.
And any of the kind of comps that we may.
That we track 57 billion.
In.
M&A net flows in 2022, I mean that was down 35% from the year before why well the market has a lot to do with that but also the industry.
What has been significantly impacted from a flow standpoint, and I cited.
Industry data of a negative one 7% net outflows in 2022, we felt tape.
Outperformed significantly inside at the top tier in the results that we were able to bring onto the platform. It is foundational foundational to the organic growth that this company will generate in the future. Some other data points that I think are important six publicly traded wealth management companies. So other net flows declined.
<unk> declined by 35%.
Six publicly traded wealth management companies.
So their net flows dropped by 50% average of 50% in 2022.
Asset managers publicly traded asset managers that we track they saw their net flows declined by 70% last year.
The two the two publicly traded tamps that we track and look at closely their range of.
Flow degradation last year between 40, and 60%, we outperformed and it's really important because what that does is it adds more accounts more advisers using our services, but at reduced.
Values inside those accounts and as the market stabilizes and the market expands that will drive accelerated growth organic growth.
For the company. So we've been gaining share we've been growing our account pool pretty substantially last year growing the number of users or users of our solutions in a really difficult market. So.
When I look at our organic growth rate year over year 'twenty, one to 'twenty, two we went from 13% to 7%.
<unk>.
Organic growth.
That is much.
It's certainly a step back in 'twenty two but.
But competitively it is a it is a significant outperformance so.
I talked to Michael.
Answer Michael's question about some of the things that will contribute to the organic growth going forward, we left the year last year with tremendous momentum.
The momentum in these higher value.
Tend to be higher revenue higher margin solutions and the adoption rate.
The floor plan or the footprint of our distribution grew substantially and then the usage is growing very substantially from an advisor standpoint, and you can see it in our account growth. So.
And then if you look at our sequence of 2023 Surinder. It's important to note that we will exit the year.
With double digit growth.
And that is as we burn off the comps of the of the.
Of 22 over 'twenty to 'twenty three.
And also we begin to overcome the <unk>.
<unk> of the market last year. So it's not a question of if we get there. It's a question of we need a bit of help from a stabilization in the market and as the market stabilizes, we believe we're going to see that.
The 15% organic revenue growth rate.
That we committed to.
And we believe we will achieve that by 2025, given a stable or stabilized market.
So it's a long answer but I think it's important to provide that context. We we are making progress in that growth strategy that will drive long term value and long term growth for the company were deep more deeply position with our customers and we're getting more usage from advisors and higher value solutions Thats exactly what we set up.
To do that.
And then surrender just following up on that you did ask about the acquired revenue in 'twenty, two and 'twenty three.
The timing of the acquisitions, we had was basically middle of the year. So if you add them altogether.
Came on at a run rate of about $10 million. So.
Acquired revenue was about $5 million in 2022 5 million in 2023.
And then we're already starting to see sprouts and really good opportunities for growth in those acquired businesses, yes, both of DNA.
And the wealth side and then you had one other question Surinder regarding <unk>.
Free cash flow and how we view kind of that expense set for the company as we made the investments.
We brought on EBITA, but we.
What other things that come along with that as we recruited.
Over a thousand kind of value driving future value driving individuals into the company.
Who are more.
Data driven data science.
<unk> API codes coders et cetera.
Used.
As you look at the 'twenty two number we use stock based comp too.
To incent everybody to align.
The team into our objectives.
That'll that'll be managed.
On a go forward basis.
Use capex as we capitalize more software as we're pulling more and more of our environment into the cloud they're capitalized cost to come with that that will level off and begin to come down as we reached the back half or the back end of our our investment cycle.
And then you look at the <unk>.
Consolidation costs are the restructure costs that the company we've gone through a very substantial integration of the company and with that comes transitions for individuals that we brought the organization more tightly together and we've also.
Separated from individuals as we've gone through that and so those are all kind of part of the process. As you go through an investment program. So yes, we're very aware of it it's a very important priority as we manage our way through the backend of this investment cycle and Youll see improvement in those those.
Cost as well as we get through.
Through the year and into 'twenty four 'twenty five.
Thank you Bill that was actually really helpful. I appreciate that alright.
Alright, Thank you Sundar.
As a reminder, <unk> question.
Question.
One on your telephone keypad.
Our next question is from Michael Cho with Jpmorgan. Please proceed with your question.
Hi, Good evening this is Matt <unk> on for Mike.
Can you share some trends youre seeing in the data and analytics business in terms of new user growth trends utilization and yield per user.
And maybe also discuss the sales cycle and renewal timelines are staying in that business today as well. Thanks.
<unk>. Thank you for your question.
The data business, what we saw last year was we have signed a significant number of new logos, we have increase in our user.
Users on the on the data platform lower yield per user as we saw.
Uh huh.
Higher components of usage in areas that just have lower yield per user.
Versus things like account verification and other areas.
Our larger fintech clients.
Kind of slowed in that area.
So we saw really good momentum I would say overall in new client.
New client sign ups user growth and I think that.
Kind of.
Bodes well for our future in that business.
Im also I also pay quite a bit of attention to.
How we exit the year and we exited the year in our data business with a far far stronger.
Pipeline.
Institutional opportunities.
<unk>.
And also fintech opportunities than we started the year.
And as we look at our business we see.
The pipeline kind of growing anywhere from two times to 10 times, depending on the capability within within the data business, most interested or most kind of where we're really seeing the acute deepen in our onboarding accelerate is it isn't something that we call the wealth.
<unk> data platform.
<unk> been talking quite a bit about that that is assembling all the data for our enterprise in RA clients, helping to normalize that helping to reconcile and enrich that and then publish it out into the advisors ecosystem into that we provide insight. So our recommendations if you will on how that advisor can bet.
Manage or engage their clients and we're seeing pretty significant uptick in.
The clients that we're onboarding as well as the pipeline I would say that between four Q of 'twenty two in one queue here, where we sit in February we've seen a doubling of that.
That that opportunity set for us. So there is lots of interest and lots of very good traction as we get to the <unk>.
Introduction and rollout of our wealth data platform with our with our customers.
From there <unk>, what's important to realize is that as we offer the wealth data platform. It connects back to our entire ecosystem of technology and solution. So it will drive faster adoption of those high value asset based solutions that I that I spoke about earlier and really the data is looking across.
Today 91 different opportunity sets for advisors.
That range from we talked about in the prepared remarks, moving brokerage assets to managed assets, but can go to how can I consolidate our loan portfolio for a client how can I.
Help our clients optimize their insurance portfolio things like that that are really helpful. For the advisor the last point I would make is around the research business.
And the research business for.
For analysts and investors to realize we use our data in a anatomize.
He identified way that.
Helps create insights for asset management firms to make investment decisions in that business.
Has.
It's been a headwind for us it's been a significant headwind for investment and for the data business because there's been increased competition in that space and really over the last three years, we haven't had a substantial upgrade in the data product itself and.
And so what we found is that where we've got pretty good retention from a client standpoint, but those contracts have been renewed at reduced rates.
We've made a lot of progress there and so as we look at the second half of 'twenty. Three we fully anticipate that that research business is going to begin to post growth versus some of the pull that we felt from that business and it's because we have improved the dataset we are offering.
New features and functions that are differentiated to the data that is existing in the market and the response, so far has been pretty important for our clients in Q1.
Again year to date I think it's February 20, <unk>. So between the beginning of the year and February 23rd our pipeline and our interest from clients as to what it was as we ended 22. So it is the.
The interest in our <unk>.
Data set and the research product is growing materially and I think it bodes very well for the back half of the year. When we think about the research data business.
Okay, great. Thanks for taking the question.
Alright, thank you.
Thank you and our next question is from Patrick O'shaughnessy with Raymond James. Please proceed with your question.
Hey, good afternoon can you speak to the thought process behind the share repurchases that you executed in the fourth quarter and then your capacity and willingness to continue repurchases as we move into 2023.
Yes, so we were kind of tracking throughout.
We got the authorization a couple of years ago and have been tracking opportunistically as the price. Obviously in 2022, there were there were periods throughout that we.
That we took advantage and bought in some shares and in the fourth quarter in conjunction with the.
The debt issuance of the convertible note issuance.
We wanted to do as much as we could to both return capital to shareholders as well as.
Mitigate some of the share dilution that comes along with the convertible note issuance. So.
We were a little more aggressive in the fourth quarter to do that I think going forward again, we will continue to be opportunistic.
We have run up toward the towards the end, although we do still have some capacity with with the authorization from the board.
And as we see opportunities, where we have certainly considered would consider going back and asking for a greater authorization from our board.
Got it thank you.
And then obviously this past quarter there was some public filings by an activist shareholder can you characterize your interactions with impact of capital and where do you see this heading.
Thanks, Patrick its Phil Hope you're well.
Yes of course.
Sure.
Filings and.
Publication.
Net impact of has.
Published.
<unk>.
I think I'd take a step back and just just kind of.
Talk about.
Two years ago, we were investing so that we could bring the parts of investment together, we can leverage the power of data to drive growth, we could solve the debt opportunities and issues that our clients have and deepen our competitive advantage. We've done those things and it took investment dollars to do it.
We said, we'd also two years ago create sustained operating leverage for the company I talked about it in the.
Our prepared remarks, we want to lift the ceiling for margin expansion for the company and I think we've we're really creating the environment to do that we're automating more of our servicing.
<unk> transition and rebalanced our Canada.
The organization to value driver of value creation and value extraction versus administration.
<unk>.
You are beginning to see and we're beginning in our outlook beginning to deliver.
The benefits of those things and so my strong belief and of course had the opportunity to talk to lots of investors over the last.
<unk> 2000.
At the end of 2022.
And you know.
What I hear is the drive towards.
Greater profitability and delivering on free cash flow and as we turned the corner here and get into the.
Into 2023, we've given guidance around our margin expectations I talked a bit about how we'll continue to manage on those free cash flow items and youll see youll see though.
Theres benefit that lies ahead for us in 'twenty three there theres a lot of alignment Patrick and I think that that at the end of the day I believe that what we are what we've done here is that we've created alignment for our customers and what they need and how we brought the company and our capabilities together and Thats been very.
Well received and I believe beginning in the fourth quarter of last year and now we will executed on a go forward basis, there's going to be really a high degree of alignment with our shareholders.
And.
I would say that at a high kind of.
Encompassing level, there, but theres a lot of alignment and I believe it's how we're operating the business and I believe that that is something that investors are going to benefit as we go forward.
Alright, great. Thank you very much bill and Pete.
Alright, Thank you Patrick have good evening.
There are no further questions at this time I would like to turn the floor back over to Bill.
Closing remark.
I want to thank everybody. This evening for joining us again I'd like to thank very much our shareholders.
For your support of investment.
Once again the team here at <unk>, who has done a tremendous job in bringing that parts of our company more closely together to deliver real benefit to the marketplace and our customers as well as provide what I believe will be long term.
<unk> creation for our shareholders.
Very much I look forward to speaking to you next quarter.
This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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