Q3 2023 Envestnet Inc Earnings Call
Greetings and welcome to invest net third quarter 2023 earnings conference call.
At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation.
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As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host Mr. Josh worn incoming chief Financial Officer. Thank you. Mr. Ward you may begin.
Thank you and good afternoon, everyone I'm, Josh Oren incoming chief financial officer of investments.
Thank you for joining us on todays third quarter 2023 earnings call.
Before we begin I'd like to point out that our earnings press release supplemental presentation.
<unk> Form 10-Q can be found under the Investor Relations section of our website at Investor <unk> Dot Com. This call is being webcast live and a replay will be available for one month under the Investor Relations section of our website as well.
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.
Encourage you to review the cautionary statement on slides two and three of the supplemental presentation 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 this call, we'll be referring to certain as adjusted financial measures. Please refer to the appendix in our supplemental presentation for a reconciliation of these as adjusted as adjusted financial measures to the most directly comparable GAAP measures.
Joining me on today's call are Bill Krager, Investment's, Chief Executive Officer, and Tom <unk> Executive Vice President for business lines on our call. This afternoon, we will provide a company update as well as an overview of the Companys third quarter 2023 results.
After our prepared remarks, we will open the call to questions.
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 and with that I'll turn the call over to Bill. Thank you Josh.
<unk> leads the wealth industry, because we serve better we scale better and we have consistently and repeatedly delivered on the future needs of our clients. We had the vision and conviction that our industry's ability to deliver greater advice required an automated connected technology platform with a broader set of solutions.
That is powered by data intelligence, we are delivering this industry, leading environment make us more embedded and more essential to our clients over the past two years, we invested very specifically to extend our market leading position and to take share and also to increase the operating leverage in March.
<unk> in our business.
Our investment cycle was necessary and it is now complete.
We've integrated systems embedded automation in our processes and upgraded our technology.
As we review our results and accomplishments Tonight. There are three things to focus on first our competitive position is unparalleled and is being validated by the marketplace. We serve we are significantly extending our competitive position by delivering a fully connected environment with by far industry lead.
At scale, we are confident in the growth opportunity ahead, which is evidenced by client and market share gains in a challenging macro environment.
Second we are better servicing our clients with greater efficiency, leaving them to increase their engagement with us.
Over the last 18 months enabled by our investments our client service scores have written risen dramatically, which shows up in our 95 plus percent wealth client renewal rates also our clients are contracting to do more with us using more of our integrated services and solutions with our contract addendums up 30.
<unk> year over year, and then third.
Long term sustainable operating leverage we have created will meaningfully increase shareholder value your automation and consolidation of our platforms is delivering greater operating and expressed expense efficiency.
Since the start of 2023, we have reduced our operating expenses by over $60 million on a run rate basis.
We are structurally a higher margin company than we were before.
Our leading competitive position and the ability to take share along with significantly enhanced operating leverage are the gains we are experiencing based on the success of our investment cycle.
Now I want to introduce you to Tom Sip.
Tom leads the business lines for invest net and he is going to review our third quarter results.
Thank you Bill.
Our performance in the third quarter reflects investments focus and execution within a demanding macro environment.
We are enhancing our platform strengthening client satisfaction and winning market share.
With the investments cycle now firmly in the past, we've become a more efficient effective and profitable company.
While accelerating additional cost reduction measures.
Okay.
Here are the key highlights for invest net for the third quarter.
Revenue in the third quarter grew 3% year over year to $316 8 million within our guidance range. Despite softness in the subscription revenue.
Adjusted EBITDA grew 26% year over year to $67 2 million above the high end of the guidance range.
The adjusted EBIT margin was 21% an improvement of 380 basis points year over year.
And adjusted earnings per share was <unk> 56.
Also above the range.
Now moving on to expenses Q3 personnel costs as adjusted for severance and noncash compensation expenses were down 15% year over year.
These reductions primarily reflect our planned exit from the investment cycle as well as expense management actions that had been fully implemented.
It's important to note that even with reduced personnel cost we are more efficient.
Delivering new products technology and solutions to our clients with greater service levels.
Increasing automation of service and operations is a key benefit of our investment plan.
Overall, the macro environment in Q3 continued to present challenges for our clients and prospects as well as our business.
And the wealth segment, our Q3 revenues grew to $275 million up 7% when compared to Q3 2022.
We are pleased with our performance in light of a difficult market environment.
Where industry wide flows remains remained challenged.
Investment continues to generate positive net flows into both AUM and.
But the mix in the quarter was unfavorable for our fee rate.
Our asset based revenues increased to $193 9 million up nine 5% when compared to Q3 2022.
Our wealth business continues to increase market share.
Our Q4 results are impacted by markets during Q3 with a blended 60 40 portfolio was down approximately 3%.
For Q4, we anticipate asset based revenue to be between 183, five and 180 $386 5 million.
Assuming the midpoint.
This leads to a projected asset based revenue growth to be approximately one half of 1% for the full year 2023.
As a reminder, all of the investments asset based pricing models are and our wealth segment.
Our subscription based revenues in wealth increased to $76 8 million up one 1% when compared to Q3 2022.
Our Q4 performance in wealth will be negatively impacted by timing delays in connection with new client conversions and new programs coming online that we now expect to begin recognizing in 2024.
We do not believe that the Q4 wealth subscription performance reflects the underlying opportunity for this business.
Recent pricing actions and new customer wins gives us confidence and an accelerated subscription revenue growth rate in the next few years.
All in all our expectations remain to grow our wealth subscription revenue at approximately 6% in 2023.
In our data and analytics business, our revenues declined 15% compared to Q3 2022 to $41 8 million.
But grew sequentially by two 4% compared to Q2 2023.
As discussed in previous quarters.
The banking crisis led to client cost cutting initiatives and implementation delays.
<unk> lower than forecasted subscription revenues and bank and tech channels.
That being said, our revenue has stabilized and business metrics, including pipeline and bookings are strengthening.
Giving us optimism as we go into 2024.
As we look out to Q4 and the full year.
And consistent with how we provided information previously for.
For the fourth quarter, we expect revenues to be between 309 and $314 million.
Adjusted EBITDA to be between 64, 5% and $68 5 million and.
And adjusted earnings per share to be between 51% and 54.
Therefore for the full year 2023.
We expect revenues to be between $1 $237 million and $1 $242 million.
Adjusted EBITDA to be between 245, and $249 million and adjusted earnings per share to be between $1 98 and $2 <unk>.
With that let me turn it over to bill to highlight the conviction we have for the opportunity before us. Thank you Tom Let me share our marketplace perspective with you.
For the first time in a generation there is the option to place assets in money market funds and secure higher yields.
In Q3.
The industry once again saw a negative long term fund flows and public commentary from asset and what.
Wealth managers has noted that account cash balances are rapidly growing.
Retail money market fund assets are up 50% in the last year.
Financial advisors are asset allocators, and fiduciaries and given the environment, we're seeing them shift to securing and protecting capital while they are creating and revisiting financial plans with their clients.
We've seen a significant influx of reporting only accounts as investors allocate more to cash.
There will always be market cycles in the current cycle of a higher interest interest rates and depressed equity flows are challenge. However, and this is important our operating metrics are strong, we're taking share or annualized <unk> M&A organic growth of 11% in the quarter compares to low to mid single digits for other companies.
On a trailing 12 month basis, our organic asset growth rates have been 8% for M&A that is well ahead of the industry.
So advisers are using more of what we offer with increasing adoption and activity on our platform something I track very closely is our AUM in accounts per advisor and those are up 9% year over year that is impressive given the environment.
We are focused on ensuring that as assets begin to rebalance into investment portfolios.
We are extremely well positioned for the demand and growth that will come. This is the advantage, we have and the scale and depth of our installed base as we serve 107000 more than a 107000 financial advisors.
And five four trillion dollars in assets.
Investment is more deeply engaged and connected with our clients and partners than ever before our clients are adapting to the environment and using this cycle to look at their cost structure and operating environment. They are focused on making their technology and solutions stack simpler more connected and more efficient by doing more.
With fewer partners or.
Our focused engagement model and the work we did to integrate our capabilities has put it put us at the center of many vendor consolidation discussions at.
At a recent meeting with a large client of ours.
He told me that their analysis discovered that invest neck could help them consolidate over 68 different applications. They used to operate their business today.
As proof of our progress that's evidenced itself in many ways, including new logo wins and deepening contracts with our installed base of clients. A recent announcement of our partnership with first command is a bellwether of what we're accomplishing.
His first command stated investment has all the capabilities solutions and tools that we need to serve our military Terry families invest net is the leading platform in this space.
First command is signing up for our full platform and our full suite of solutions.
Long time significant customer of ours is another example of a client doing more with us they have expanded beyond our managed account platform to include a broad set of our services, including a mandate to carriers and advisors that are 100% of annuity annual annuity contracts will be processed through the invest net insurance.
<unk>.
This is a long term client who is consolidating vendors leading to the expansion of investments reach.
Adding more solutions to our contracts isn't leading indicator of future results or enhanced operating environment has led to deeper engagements and this is evidenced by addendums to our contracts, which are up 30% year over year.
We're seeing a convergence point for our partner as well as they position themselves to benefit from our distribution footprint. It.
It is because we have connected the components of investment and engage more advisors that now we have more levers to drive incremental revenue streams through partnerships among.
Among these are asset managers, we're expanding our relationship model, adding new distribution in collaboration opportunities.
The leading asset managers focus on capabilities that will drive their growth.
Another areas custody partners, we sit at key convergence point for a truly integrated wealth plus custody platform that the market needs for greater scale and operating flexibility. We're incredibly bullish on the long term revenue opportunity that this creates for our shareholders.
We're leaned into this partnership with F&B and are building out a differentiated option for the marketplace with growing customer interest. Additionally, we've seen increased interest from existing custodial relationships to integrate more closely with us and this is a recognition of our scale and our distribution strength.
A brief update on our data and analytics business last quarter, we outlined the critical factors for stabilization of this business.
While there continues to be softness in banking and aggregation sectors. The research business reached <unk>.
Significant milestone as the new datasets have been on boarded after only one month, we are seeing a meaningful rebound in our business indicators and results in Q3, new bookings were up $2 million year over year. There were also 21 opportunities that are in the research trial, Q, representing $8 3 million of potential Q4.
Bookings. This is progress we're on an improving path for this business and we will report on the progression, we achieve and next quarter's meeting.
To summarize.
We're operating with deeper client engagement quality of service and efficiency, let me be clear client feedback is strong our service scores have risen by 40% over the last 18 months.
And in the second half of this year, we will have lifted our adjusted EBITDA by 19% versus the first half of this year. We are confident that this will continue.
Now I'll hand, it over to Josh Warren, who we are very excited to welcome to investment and be fully installed as our chief Financial Officer next week. His comments set the stage as he steps into his new role Josh. Thank you Bill.
I'd also like to thank the entire team at invest net for a warm welcome and Pizza Rigo Investnet CFO for the last 15 years in particular for helping me with a smooth transition.
I am excited about the journey ahead, because investnet holds a distinct position within the ecosystem that others have tried and failed to replicate this position is important and impactful powering financial advisors and the millions of clients they serve.
I would also like to emphasize that the long term sustainable operating leverage created will meaningfully increase shareholder value.
Youre seeing the benefits of the investment cycle being completed more automation scale and an ability to reduce costs, while delivering an industry, leading platform and operating environment for our clients that are looking to have fewer and deeper partner relationships.
We ended September with $43 $2 million of cash and $892 5 million of total debt from our two tranches of convertible notes based on the operating results that Tom outlined we reduced our net leverage ratio or net debt over trailing adjusted EBITDA to just shy of three seven times as of September 30th.
Based on the rest of the year outlook outlined previously we expect to reduce our net leverage ratio to approximately three five times by the end of this year.
We're in the process of our annual planning cycle and will give an appropriate outlook for 2024 on our next call, but let me share how we're thinking about the outlook to provide some added visibility and transparency.
Invest net is now a structurally more efficient company following the conclusion of our investment cycle.
Bill and Tom mentioned, the investments made in automation and scale. During 2023. These initiatives are expected to yield approximately $27 million in expense savings with the additional expense savings to be recognized in 2024 and beyond and a combination of compensation and non compensation related expenses.
Further given our scale and our operating leverage we expect future revenue growth initiatives, such as those that bill and Tom outlined will all be margin accretive as they scale.
Those who have followed investors are familiar with our as adjusted metrics on our income statement, where naturally progressing to our 2025 target of 25% adjusted EBITDA margins and metric we've used in our debt covenants and provided guidance on.
I would also like to add some additional commentary here as it relates to free cash flow compensation expense and software development as we look forward.
This year investment will pay approximately $34 million of cash for severance expenses, which we expect will impact our free cash flow. During 2023, we expect severance expenses to be significantly lower going forward.
Given our lower employee base, we expect our noncash stock based compensation will be down by approximately 15%.
We anticipate providing visibility on our free cash flow generation going forward for transparency and comparability, our free cash flow will deduct both our capital expenditures and our internally developed software for Ibs capitalized under GAAP based on the stage of development and deployment.
While our 2023 Capex as previously stated will be approximately the same as it was in 2022, our internally developed software costs for 2023 are expected to be approximately $93 million, representing a 4% increase from 2022 Ibs.
Now that the investment cycle is complete we anticipate both our capex and our ideas to be lower in 2024.
To summarize because of the investment cycle in 2022.
And for the full year 2023 investments free cash flow was and will be negative.
This will not be the case in 2024, and we will give greater detail on our February call.
One final note before I move on as of October one the advisor focused wealth analytics business transferred over to the wealth segment to better align reporting with the way we manage the business focused on the clients that we serve we.
We anticipate this transfer to be approximately $4 million of revenue in Q4, and it is reflected in the outlook that Tom provided earlier as.
As stated in February on our next earnings call, we'll provide an update and outlook at that time. Thank you and I'll now turn it back to bill for closing remarks. Thank.
Thank you, Josh and once again welcome to investment.
I want to spend just a moment to recognize and thank our departing chief financial Officer Pizza Rigo since joining investment in 2008, <unk> made invaluable contributions to our organization into our success helped to lead our successful IPO and he helped guide our company through multiple market cycles, Pete has been an exception.
<unk> colleague and leader in his tenure as investment CFO has been vital Pete Thank you.
Now, let me wrap up our prepared remarks, and I'll conclude with this or.
Our investment cycle is complete and has been successfully implemented.
Our competitive.
<unk> position is unparalleled and our long term growth thesis is being validated by the marketplace that we serve.
We're better servicing our clients with greater efficiency, leading them to increase their engagement with us.
And the long term sustainable operating leverage we have created will meaningfully increase shareholder.
<unk>.
We're doing what we said we would do and it is working despite negative industry flows we are gaining share and if solidified the right to win in the marketplace. We are using our leading technology solutions and data intelligence and powerful competitive advantages to go deeper and become even more essential to our customers and importantly, we will.
Build on the progress we've already made on delivering increasing economic and operating leverage.
Incredibly grateful for our clients partners and employees of investment for making such a difference in the advice that thousands of advisers offered to millions of millions of American households, I'll now turn it over to the operator for questions. Thank you very much.
Thank you we will now be conducting a question and answer session.
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One moment, please while we poll for questions.
Thank you.
First question comes from the line of Michael Cho with Jpmorgan. Please proceed with your question.
Hi, Good evening, guys Hi al.
Good.
Thanks for taking my question I guess my first question I appreciate all the color on the expenses in the 24 kind of initial thoughts.
I guess I was just kind of just curious if you could just elaborate a little bit more in terms of kind of how we should think about.
Margin progression over the course of 2004 as you think about the 25% targets for 2025, and I think Bill you mentioned that $60 million kind of run rate savings.
And Josh I think you said $27 million of expense savings in 2003.
If you want to talk maybe a run rate exit run rate in 'twenty three.
And how we should kind of.
Think about that for $2000, all right I'm going to add.
As Tom Tom <unk> is going to begin and then Josh will finish.
Yes, Michael I would think about it a couple of ways first we have seen some pretty good margin expansion over the past 12 to 18 months.
We are well on our way to the 25% target.
We think it will not be back end weighted we will evidenced some pretty material progress in 'twenty four so think about it as more of a linear progression from 'twenty two 'twenty $3 went all the way out to 'twenty five.
There is.
Expense initiatives that we've already implemented that will flow through next year and then the other thing that you should think about is our free cash flow conversion rate will improve as well. So we're on our way to the 25% it will be a linear progression and more will drop to the bottom line going forward and with that Josh.
Thanks, Tom and Michael Let me just say first as a reminder.
With regard to our 2023 Opex that Tom mentioned.
Our outlook for the full year.
Headline to take away is on roughly a flat top line during 2023, which is of course, a composite of wealth and DNA are 2023 expenses have been reduced by approximately $27 million.
And in connection with that you asked about the $60 million of run rate savings. That's based on actions already taken about half will be recognized this year and the remainder of the $60 million will be recognized next year and a combination of operating and capital expenses by the end of 2024, but to be clear our priority going forward is free.
Cash flow generation and we're of course very focused on delivering a robust and sustainable free cash flow generating franchise going forward as we continue to deliver the highest quality platform in the industry.
Perfect. Thank you.
And so for my follow up I, just want to switch gears, a little bit just kind of zooming out.
Can you kind of talked about the opportunity set for the custodian for some time now just one.
Curious on an update on timing there and then too.
You talked about kind of what a large set of long term revenue opportunity. There for investment looking ahead I mean, how do you. How do you think about sizing this kind of opportunity for this offering.
Medium term.
And is it really just really offering subsidy declines, although other synergistic areas that Mike I create further value for investment.
Yes, awesome, Michael Yes, no, making very good progress.
With our partners at F N Z.
They have recently transitioned to their operating platform that is mostly trust focused and we will be in market with them either in Q2 or Q3 of this year.
When.
Market analysts as well as clients take a look at the operating environment that we're going to be able to offer them is differentiated and theres a great deal of interest. So again, we're making a lot of.
Engagement progress.
Integration progress and now to get to market by Q2 or Q3 that does not include their broker dealer registration, which they filed with.
The regulators and we're hopeful that they receive that and we are in operation with the broker dealer side of the offering.
At some point in 2024, but we are encouraged.
The other dynamic Michael that I would just spotlights.
Is that overall I think that the custody environment sees that the integration of what we do and what they do as a very meaningful step forward in operating efficiency, helping our clients take out costs, helping them open accounts and managed accounts with less friction so were deep.
<unk> engaged with legacy custodians on how we offer that and in each of those environments. Both the <unk> and with our current custody partners. We believe there is financial benefit for investment so were working hard and that's a focus point of ours. The other area of opportunity I spotlighted when it.
When it comes to strategic partners is asset managers and.
We own and have a very critical distribution footprint and as we brought the platforms together.
All of our advisors have access to all of what we do it becomes an incredibly valuable conduit to reach more and more advisers with capabilities that asset managers are focused on and investing more in which includes personalization, which includes overlay and adding value.
<unk> alpha to performance through things like tax overlay risk overlay, an individualized portfolios that are defined by the industry as direct indexing, Tom would you add anything <unk> I would just add on the custody Michael we're going to retain revenue on cost to the economics think of that.
Two to five basis points, and we'll provide an integrated custody wealth custody ecosystem real time account opening <unk> real time trading so a better solution and we're going to have several options F&B will be one option and then we will have.
At least one if not more options from the established players in the U S market and initially will be in market with Bank Trust departments in <unk> call. It middle of next year and then we will then cross sell to our broker dealer clients end of next year into 25, but for the first time investments than participating in those.
The economics, which include the money they make on cash and then when bill was talking about the asset managers.
We're seeing a big trend in personalization.
Half.
We work with <unk> 900 asset managers as part of our marketplace. Today. There is an opportunity we've invested a lot in personalized capabilities. So think of direct indexing think of high net worth solutions Trust solutions, we're going to work with a smaller group.
It's going to be call. It a handful of major asset management.
Partners and the economic relationship with those partners will be very different than what <unk>.
<unk> with the asset management community before and then they'll also lean in from a marketing distribution sales footprint perspective, So youre seeing a theme here, where we're participating in more economics from the custodians and from the asset managers, which over the next couple of years are going to start to be a meaningful impact to our P&L, which really.
Is all made possible because we brought the platform together into an integrated conduit to reach so many advisors Michael Thank you for your questions.
Perfect. Thanks, guys.
Thank you. Our next question comes from the line of Alex Kramm with UBS. Please proceed with your question.
Good good. Thank you good evening, everyone first off maybe on the topic of pricing. This is maybe a two parter, but maybe it's a one partner, but I think Tom you made some comments.
And I think it related to the subscription side and that you've taken some pricing action and looking for things to turn around so maybe you can just flesh out what exactly you did and what that meant and then connected to that just quickly I think the the revenue guide for the fourth quarter.
It assumes some sort of pricing deterioration on the AUM side like maybe like three 4% also at the mid point. So maybe I don't know if those two things are related or different so maybe just flesh out those two things. Thanks, I'll take both of those and I think they're not related so one the fee rate what's going on there when you have kind of backing into the <unk>.
The rate for the fourth quarter, that's being driven by really two primary things. The there was a big client conversion about 17 billion of assets that starts off at as low fee reporting only assets and then next year, we're going to see the managed accounts convert onto our platform. So that will lead to higher fee incremental assets next year. So that's one.
One of the drivers.
Q4 fee rate. The other is just the mix between AUM and <unk> and clients when they moved more to cash.
It affects our fee rate because thats, mostly a reporting only relationship so again nothing to do with pricing.
That conversion and then as clients move and thats happening across the industry more <unk> more cash and that affects your blended fee rate.
And then if you move to the pricing.
I'd say that we're making a lot of progress with <unk>, where our unit pricing is going up but then also what we're doing is we're bundling more with our raw relationships. So we are with our tamarac already as it's a operating platform relationship trading reporting <unk>.
<unk>, we've now bundled insights and analytics.
The fee goes up but they're also getting more for.
A more enhanced platform and then from our perspective strategically when they use those insights and analytics over time that will lead to further adoption of our solutions. So we not only get the higher fee.
With that bundle, but youre going to get better penetration rate for our fiduciary solutions over time.
Great. Thank you that's helpful. And then maybe for my second topic and this is for Josh I mean, I know youre not taking over as CFO until next week, but obviously you made some comments here. So just I guess bigger picture.
You're stepping into the role with the stock being down year to date, I think 39% and the market is up 15 over 14 and 15.
From the outside looking in this is this looking like something is broken.
I heard your comments, obviously it sounds like you are very supportive of what's been going on in the.
I guess what's in place.
In terms of the operating leverage but just wondering if you look from the outside in and now having a chance to look from the inside a little bit more.
What else do you think you can connect here.
To obviously improve the picture because the market is obviously not buying in what's what's been laid out so far thanks.
Sure well thank you for that question Alex.
I mean look I'd say this I've gotten to know invest Ned over many years.
A partner as a counterparty.
All of this is public information and well known in the marketplace when investment as a core partner of Blackrock, where I worked for the last eight plus years, it's a core partner by capital and alternative investment marketplace, where I've been on the board.
And audit and risk committee for the last four.
As the leading vertical provider that serves the needs of financial adviser financial advisors investment delivers in the operating environment and as Bill talked about that operating environment is the gateway for many in the ecosystem.
I think that creates a unique opportunity to grow from.
Alright fair enough looking forward tomorrow.
Thanks Al.
Our next question comes from the line of Peter Heckmann with D. A Davidson. Please proceed with your question.
Hey, good afternoon.
I appreciate it.
And then I will ask the question I just want to go back to that pricing issue.
<unk>.
On the last question.
It does appear that the fee rate declines really quite a bit in the fourth quarter and I can't I heard the one thing about the one big client conversion was $17 billion.
But on that base of assets I wouldn't think that would move the needle quite so much.
So so you said once they move to managed accounts over the fee rates should go up and then as you continue to collect assets.
In the first party managed.
Sure.
Should we start to see the fee rates start to move higher in 2024.
Well.
Thank you for the question so that $17 billion comes over at a very low fee rate. They are managed accounts don't come over until next year.
So thats when we will make.
Six seven basis points on the on that asset base versus one or less than one but there's two things that are driving your Q4 calculation. One is that specific client and then to the mix of <unk> versus AUM more money across the industry and our platform is an EUA and then more.
Within <unk> is moving to cash so as money more money moves to cast it shifts from AUM higher fee assets to really a reporting only fee for us. So those those two of the drivers that are affecting that fee rate. So it's not price degradation prices decreasing with existing clients.
It's really that new client and the mix issue, that's affecting that fee calculation periods and this is bill yes.
It's the dynamic and I would just spotlight kind of the overall market net flow environment and in the past quarters of really I've spotlighted and I'll do it now the success.
We're having in selling into our existing client base more of these high value solutions.
But.
Year to date.
Year over year for our high net worth solutions account growth of 63% and assets of 55% year over year direct indexing assets of 48% growth year over year and account growth of 27% overlay 41%.
<unk> year over year growth with account growth of 28%. So we're being successful, but it's not enough to two.
Defy the overall AOA flow that is coming in the platform that <unk> flow is healthy we're able to see more of the advisors business as they position their clients in more cash or defensive positions and ultimately will rebalance into these types of solutions when the mark.
It normalizes in the rate environment becomes clear so that's just the dynamic and we're managing it and.
Again, there is a conversion good thing $17 billion low fee rate ultimately becomes higher fee rate. There is a big flow of AOA, but our focus and our success. Our continued success in penetrating our current book of business is meaningful.
I would also so we see our fee rate is stable.
<unk>.
<unk>.
Bolt on M&A, it's the mix that's changing the calculation, but then as you look forward and think about our subscription revenue.
We've got a lot going on in the retirement space. So there will be growth in subscriptions driven by those initiatives, we've talked about our partnership with empower that will come through a subscription revenue. It will also come through his fiduciary revenue as where the default manager on those plans. We have a lot we talked about the asset managers, we're going to get different economics going forward.
Third from the asset managers and Thats that will mostly come through incrementally as subscription revenue and then we have organic growth new clients coming onboard onboard we talked about first command that's a pretty material client. It's about 500000 accounts $35 billion of assets that will come on second and third quarter.
Of next year, and then we see solid growth in our insights and analytics based on the.
The signed deals in the pipeline and then our <unk> growth. It's one the subscription Standalone platform, we bundle analytics and then we cross sell from their managed accounts tax overlay direct indexing and then at some point next year call. It the middle of next year Youll start to cross sell custody to those existing relationships and the only.
I would add to that Pete not to pile on but also a stabilization in the da subs line because that has not been the case that has been a heavy weight that has kind of dragged down our overall subs growth and so we.
We have made a lot of progress this past quarter and we will report on more as we get to the end of the next quarter the quarter that we're in now.
Okay. Okay. That's helpful and then.
You'd probably remember why but professional services and your guidance is up over 90% year over year remind me.
What's driving that dynamic.
So this is Josh I'm happy to I'm happy to take that that's effectively a single clients, which is an existing client of our DNA business.
Where the new service that we're providing for them in connection in some respects with the new datasets that Bill mentioned is effectively a net new build and therefore, our professional services revenue still revenue to invest net but for the for the quarter, we booked as professional services and you had some revenue shifting between subscription and professional services.
Throughout the year as well.
Alright, I appreciate it I'll get back in the queue.
Alright, Thanks Pete.
Okay.
Thank you.
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There are no further questions at this time and I'd like to turn the floor back over to CEO, Mr. Bill <unk> for closing comments.
Camilla. Thank you everyone for your interest and investment in for joining US. This evening I once again want to thank all of my colleagues at investment for the incredible work that you do thank you and have a good evening.
This concludes today's teleconference. You may disconnect your lines at this time.
You for your participation.
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