Q2 2019 Earnings Call
Good day, ladies and gentlemen, and welcome to todays investment second quarter 2019 earnings call. As a reminder, this program is being recorded at this time I'd like to turn the floor over to Mr., Chris Curtis Division CFO and head of Investor Relations. Please go ahead.
Thank you and good afternoon with me on today's call are Jud Bergman, Chairman and Chief Executive Officer, and Peter Ego, Chief Financial Officer, Our earnings press release and associated form 8-K can be found at Envestnet dotcom under the Investor Relations section.
During this conference call, we will be discussing certain non-GAAP information. This information is not calculated in accordance with GAAP and may be calculated differently than similar non-GAAP information for other companies.
Quantitative reconciliations of our non-GAAP financial information to the most directly comparable GAAP information appear in today's press release.
Specific non-GAAP metrics include adjusted revenue adjusted net revenue adjusted EBITDA adjusted net income and adjusted net income per share.
During the call. We will also be discussing certain forward looking information. These discussions are not guarantees of future performance and therefore, you should not put undue reliance on them.
These statements are subject to numerous risks and uncertainties that could cause them to differ materially from what we expect.
Please refer to our most recent SEC filings as well as our earnings press release, which are available on our website for more information on factors that could affect these matters.
This call is being webcast live and will be available for replay for one month on our website.
All remarks made during the call are current at the time of the call and will not be updated to reflect subsequent material developments, we will take questions. After our prepared remarks, and with that I will turn the call over to Jeff.
Thank you, Chris I add my own welcome to everyone. Thank you for joining us today.
And that's that continues to expand the ways that advisors and financial enterprises.
Deliver unified advice to their clients.
Whether by leveraging our industry, leading wealth management platform.
Our expanded financial planning tools.
We're implementing solutions via our various exchanges as we work to enable advisors and financial institutions to deliver financial wellness to their clients.
In the second quarter Envestnet delivered solid growth in adjusted revenue adjusted net revenue adjusted EBITDA and adjusted earnings per share.
In our wealth solutions business gross sales, excluding conversions were 34 billion.
We also completed a $171 billion in conversions.
2 billion of which were asset based recurring revenue.
And another 169 billion in subscription based revenue conversions.
We ended the quarter with 3.3 trillion in platform assets.
And 11, and a half million investor accounts.
Nearly 100000 advisors now use investments wealth management technology.
And at the end of June Envestnet, <unk> Yodlee data aggregation platform supported more than 24 million active users.
Within wealth solutions in the second quarter Hilltop securities converted their wealth management assets to invest in that.
Which will support their goal of creating holistic wealth management for their advisors correspondence and and clients.
In addition to the hilltop conversion. We also completed the next stage of a major subscription based conversion with the U.S. subsidiary of a leading global global wealth management firm.
We also entered into a five year contract renewal with lowering award.
Invest that will continue to provide the silicon valley based provider of wealth management solutions with our comprehensive platform technology.
Including financial planning capabilities through money guide.
This agreement is a strong endorsement of Envestnet unified approach to platform technology and services.
This quarter, we also announced that Merrell private wealth management will access our award winning Tamarac portfolio management and client reporting solution.
Merrell will benefit from aggregated performance reporting.
Portfolio analytics.
Or a range of interactive reports on performance metrics.
And a customized double dashboard that includes information held at other financial institution.
If the client prefers.
These solutions will be available to Merrill teams and their advisors later in 2019.
Our data and analytics business signed several new customers across the financial institution, Synteq and wealth markets with a variety of solutions, including data aggregation income and account verification data enrichment and advanced analytics for advisors and investment managers.
And the early returns are very promising with our two most recent acquisitions.
Our existing client base is overwhelmingly supportive of the money guide acquisition.
We recently signed our first international client for money guide validating our belief that financial planning is a logical expansion of our global offering.
But beyond that which we already have entered data and analytics business.
And the initial conversations with portfolio center customers have resulted in more than 50 longer term contracts with tamarac.
Annual subscription revenue will increase meaningfully for these firms once they fully leverage tamarix platform offerings.
And while our operating and financial performance has been solid through the first half of the year. We are facing some short term challenges in the second half.
First within our data and analytics business, we experienced shortcomings in the technology provided by a vendor we relied on to deliver certain credit decisioning analytics to our banking customers.
The vendor suspended service, causing a disruption that affected several clients and prospects.
The Spender also filed a lawsuit against us.
We believe the vendors allegations are false and without merit, and we will respond appropriately and defend ourselves vigorously.
However, we continue to see credit Decisioning analytics as a big opportunity for Envestnet.
Even though our revenue will be negatively impacted at least through the remainder of this year as we work to develop a new solution with a new provider.
Second the market for investment manager analytics is currently is slower than we had anticipated.
As investment managers focused on near term profitability and many cutback on external research budgets.
And although were renewals and new bookings continue it is at a slower pace than we expected.
We also continue to pursue new use cases, leveraging our leadership in data analytics.
Also in wealth solutions, a sizable conversion will be onboarded later than we expected while the on boarding work is currently underway. We are respecting the clients revised timeline and look forward to serving them later this year and beyond.
We believe these challenges are short term in nature.
We have updated our revenue outlook accordingly.
While working hard to maintaining earnings expectations for the remainder of 2019.
And Pete will go into more detail on our guidance for the rest of the year.
We remain very focused on expanding our unified advice platform.
Gaining new enterprise and advisor relationships.
And deepening our existing relationships.
Our insurance exchanges live.
And our credit exchange has attracted significant interest from both lenders and existing clients.
We recently announced the Tamarack digital account opening solution with TD Ameritrade and Schwab advisor services. We also recently announced a strategic integration between money guide and Jackson National.
And also unveiled and my blocks.
Our next generation client facing digital planning tool integrated with Yodlee data aggregation.
These are all examples of the value our financial wellness network is bringing today to our advisors and their clients.
I will turn it over to Pete at this point and be back in a few moments with some closing remarks.
Thank you John and good afternoon, everyone I'll review, our second quarter results as well as our guidance for the third quarter and the full year 2019.
Results for the second quarter include three months of contribution from portfolio Center, which was acquired and the transaction closed on April 1st in two months from the money Guide acquisition, which closed on May Onest.
Briefly summarizing investments results compared to the second quarter of 2018, adjusted revenue grew 13% to $227.9 million.
Adjusted net revenues, which exclude asset base cost of revenue grew 16% to $167.6 million.
Adjusted subscription based recurring revenues increased 33% from the prior year period.
This increase came from organic growth a reclassification of revenue from certain customers moving from an asset based recurring revenue model to a subscription based recurring revenue model as well as the contributions from money guide and portfolio Center.
Subscription based recurring revenue was 57% of adjusted net revenues for the period.
Asset based recurring revenue increased 2% from the prior year period.
And represented 36% of adjusted net revenues.
Professional services and other revenues increased 8% from the prior year period.
Adjusted EBITDA was $43.2 million, a 24% increase over last year.
Adjusted earnings per share was 46 in the second quarter, five cents or 12% higher than the second quarter of last year.
With that I'll summarize our outlook, which is presented in full in our earnings release.
For the third quarter, we expect adjusted revenues to be between 232.5, and $235.5 million up 14% to 16% compared to the prior year.
Adjusted net revenues between $169 million of $173 million up 16% to 19% compared to the prior year period.
Asset based revenue between 124, and $125 million or 4% to 5% higher than last year.
Assuming market neutral from June Threerd.
The implied effective fee rate on our end of June assets under management or administration is roughly 9.7 basis points.
Consistent with the second quarter of this year.
Subscription based revenue between 101 million and $102 million on an adjusted basis up 33% to 34% compared to the prior year.
Professional services and other revenue between seven and a half and $8.5 million.
With cost of revenue between 69, and a half and 70 and a half million dollars adjusted EBITDA should be between 54 and $54.5 million up 27%, 28% compared to the prior year.
Using a normalized long term effective tax rate of 25.5% and assuming approximately 54.2 million diluted shares outstanding.
This translates into adjusted earnings per share of 58 cents.
For the full year, we expect adjusted revenues to grow roughly 9%, 10% to a range of 897 million to $903 million.
While we did increase our expectation for asset based revenue in the second half of the year due to the favorable market in the second quarter.
Total revenue will be lower than previously expected primarily attributable attributable to the factors just described earlier.
As a result of these temporary influences we are managing our operating expenses and a very disciplined fashion for the remainder of the year, enabling us to reaffirm our mid points and tightened the ranges for adjusted EBITDA and adjusted EPS.
We expect adjusted EBITDA to grow 22% to 23% to a range of 191.5 million to $193 million and adjusted earnings per share to grow 9% to 10% to a range of $2.10 to $2.12 per diluted share.
Finally, we ended the quarter with $78 million in cash and approximately $663 million in total debt. Our gross leverage is 3.4 times EBITDA and our net leverage ratio is 3.0.
Priorities for our cash flow for the remainder of 2019 continue to be investing in the business to support our long term growth whether through acquisitions or new initiatives.
Paying down debt and ensuring we have capacity to fund the convertibles.
Which mature in December .
Thank you again for your support of investment.
At this point I will turn it back to Jeff for his closing remarks.
Thank you Pete.
We are pleased with our results for the second quarter.
As indicated we faced some challenges in the near term.
Meanwhile, we are executing everyday on our unified advice strategy, which is receiving widespread.
Nearly universal validation and endorsement.
Buy in from our clients, including the additional capabilities. We are now offering through investing that money guide.
Beyond this year, we expect our core business organic growth to be strong relative to the industry.
And we expect to maintain the 1.2 times or more relationship between the growth rate of revenue.
And the growth rate of adjusted EBITDA and adjusted earnings for our core business.
Accelerated from time to time, both in the bottom line and the EBITDA through disciplined acquisition activity.
We see a long runway for organic growth as we expand our platform for financial wellness.
We also see continued consolidating acquisition opportunities, where we further leverage our expertise of completing large and complex conversions for financial enterprises.
We believe that our opportunity to enable advisors and financial enterprises to provide unified advice.
Across all elements of their clients financial life.
And deliver financial wellness to those clients will create significant value for advisors financial enterprises their clients and our shareholders.
Thank you again for your time this afternoon.
Thank you for your support and interest in Envestnet.
And with the completion of this our prepared remarks, we are happy to take your questions.
And ladies and gentlemen, if you do have any questions. Please join the queue by pressing star one on your telephone.
If you just make sure that your mute function is turned off to allow us to receive that signal.
Again star one if you have any questions.
And first we have Devin Ryan with JMP Securities.
Great good afternoon.
Hi.
Hi, first question just.
John you talked about some of the.
Factors maybe effecting.
Business in the near term and one you mentioned investment manager activity has been little bit slower.
As they focus on profitability and are cutting your external research budgets I'm curious is that a 10 temporary dynamic that you see.
If so.
Why and kind of what are you hearing from from those clients.
So.
I would I would say that it is uncertain whether that in itself is temporary short term or it's the new new.
I believe that the that the relative slowness in analytics. However is short term and that goes to the additional products that we're introducing.
The.
The challenges that I outlined and identified with respect to the credit Decisioning product.
He was one of our faster growing offerings for analytics.
And we had expected over time would pick up some of the growth as that as would the the more traditional investment manager analytics that we are pursuing.
But within that the subset of investment manager analytics, where the investment manager has an alpha producing thesis and the analytics are an important part of that.
Alpha producing investment management.
Is experiencing.
Relative.
Relatively less growth than the factor based strategies for the index based strategies. So we we expect that the that the.
That the slowdown in analytics revenue is short term, it's not it's not.
It's not a new new if you will although I'm not sure if the sub point with respect to investment manager, who were alpha producing investment managers that that may be more than a short term dynamic we just don't know yet.
Got it appreciate the color there.
And then just a follow up for me on.
I guess the current market backdrop, just the last.
You have been weaker so here just the extreme level of volatility that were seeing you've weathered a lot of different market backdrops and I think have some great perspective here. So love to just maybe think about.
How the business performs both kind of short term intermediate term one we have.
Your pockets of volatility and typically.
I guess the question is how long does volatility have to last words, it's really kind of extreme beyond normal before you start to see impacts on business and then I guess on the other side, how long before volatility dies down does.
That that effect effectively reverse or stop just trying to think about periods of volatility and how the business performs in what type of lag.
Exist around that.
So we are coming out of a quarter, which was positive of course and.
And and not a lot of.
Negative volatility and therefore, we had.
Below expectation redemptions, which is thats all kind of holds true in the past we found that for short for shorter periods of volatility.
Days or maybe even a couple of weeks there is not generally speaking an immediate increase in.
In redemptions, nor is there an immediate decrease the decrease in gross sales of new Onboardings.
Yes, there's every market is different and the last the last three trading days have had volatility.
It's too early for us to draw any conclusions.
On on something Thats happened over the over so recently at a time.
But we've seen that.
We've been able to grow in virtually every market environment.
Over the last 10 years.
And we expect that will continue to grow although the growth rates.
Are affected by that Mac market backdrop.
A lot less win.
Net revenue.
Our asset based sources are around actually less than 40% of our overall revenue.
Where net revenue from subscription based sources are nearly 60% of our revenue. So the effect is that both the direct and in direct.
Effect is less than it has been in the past, but it's still a factor yet to be determined with this most recent.
This most recent uptick in volatility.
Understood Great well, thank you John I appreciate it.
And next question will come from Cerner, then with Jefferies.
Good afternoon.
Good afternoon.
Just following up on the question about some of the near term challenges are you guys able to perhaps quantify what the estimated impact of.
Those challenges are at this point.
Well I think if you track the guidance from last time to the guidance that we've provided this time.
The delta in that range adjusting slightly four would have been the benefit of the market.
So the.
Without getting too specific the bulk of it is.
Is picked up through those through those major two or three items jud called out.
And and that's.
Reflected in the adjusted outlook.
Okay.
Thanks, I'll make those adjustments.
And then and they are indicated in order of magnitude.
Okay, that's helpful as well.
And then in terms of some of the comments around just kind of.
A bit more on the expense control can you talk about a little bit about the restructuring that's been going on and how you guys are kind of.
Managing that part of the expenses.
Well by restructuring do you mean, you mean, the forming of two business units from four and then we've also got money is that you're talking about.
I apologize I guess, perhaps I shouldn't have used the term restructuring.
Unless I Miss heard I thought that there were some sort of initiatives or a little bit of belt tightening around expenses in in relationship to perhaps the short term challenges.
So.
We announced.
An organization structure.
Early in the year around.
Creating two business units from four we we've since.
Add on invest that money guide as a third business unit there is ongoing.
Efficiency exercises as we bring what were four business units into Twoq and so thats an ongoing part of.
Our overall expense management.
We also any in also in a year. When we are are are not performing with respect to revenue as we had expected we don't expect.
Compensation levels for incentive compensation to be what had originally been budgeted.
So there is there is a there is a variable cost to our incentive compensation that if we knew we were performing from a revenue standpoint like what we had expected the.
The incentive comp would be higher so there is a there is that we're benefiting from the variability of that as well and and then we are being very careful about any discretionary additional expenses.
Given our outlook for the rest of the year. So that's really what you should take away. There is there is no restructuring going on or court restructuring activity.
We've got the we've got the business organizations.
Headed on a path that's been in in motion for since the since the start of the year to become more efficient and given the outlook that we've just outlined we are taking steps to to do all we can to.
Uphold expectations on cash flow and earnings for the balance of the year.
That's helpful. Thank you.
And moving on we have Chris Donat with Sandler O'neill.
Hi, good afternoon. Thanks for taking my questions just digging through the numbers I see that when we look at your.
Though.
Ah AIU M. A way for licensing on a per account basis that number has been growing pretty steadily and is now just under 300000 I'm.
I'm guessing what's going on is that you're adding bigger accounts with some of your new licensing relationships, but could you tell me, what's sort of going on there with the growth there there or is it something organically with the accounts.
Like assets. So in the license accounts growing just trying to understand how I I I guess, its pretty clear what's going on I'll try to explain it.
And looking back traditionally.
Our.
Subscription versus eight you will.
Client base was was somewhat barbelled.
You would have the largest our eye is registered investment advisory firms and the larger financial enterprises opting for subscription based pricing.
As in all cases.
Is the case with the Yodlee client base always subscription based pricing.
Whereas the asset based pricing was more the mid sized or smaller or I should say.
Or the mid sized broker dealer or insurance subsidiary of a broker dealer.
As.
We continued to gain share with larger our eyes.
We've got a very strong share of market with billion dollar our eyes.
There's an uptick in terms of the average yield part of that size of the practice, but also a meaningful part of it is the expansion of our product offerings.
Six years ago, we basically had one product offering to our high end already offering a higher high end already a client base. It was a rebalancing software.
Today, we have rebalancing software performance reporting a client portal CRM as well as a managed account module. So as we expand the is as we expand the offerings that we get a broader.
Opportunity per advisor.
And then the final thing that's that's happening is that at the enterprise level.
As we go from.
Typical profile client, which would be a smaller broker dealer that made clear at a larger custodian as we evolve to a mix that includes larger self clearing firms of regional or even national prominence.
They more often opt for licensing arrangements then they do asset based arrangements. So this is in our view a normal evolution of our business as we move from smaller clients to larger clients.
Okay. Thanks for the color on that and then just to make sure I get it as it impacts the income statement.
You guys been talking for a few quarters about the mix of.
Of.
Subscription based revenue increasing.
Well you just talked about John that's one of the factors behind that increase in addition to growth in Yodlee and.
Money guide is that fair to say.
I'm I'm sorry.
Just trying to do up until the last part.
The dynamic where your subscription based revenue has been growing faster than your asset base revenue.
Oh, one for that and just one quick one factor is one factor, but it's happening I believe in all of our businesses. It's happening enterprise subscription revenue is growing faster than enterprise.
A revenue.
Okay, and then of course.
Tamarac is virtually all subscription based yodlee is all subscription based and money guidance all subscription base.
Okay.
Got it thanks very much.
In Q.
And next from William Blair, we have Chris shelter.
Hi, guys. Good afternoon on the investment manager analytics slowdown what gives you confidence that the slowdown is due to the cutting of research budgets as opposed to competitor solution is gaining traction or pricing pressure.
You know I am not sure I can't say.
Definitively that the.
Investment analytics from investment managers is is only a short term solution or sort term phenomena I believe that that the slowdown in overall analytics is a shorter term phenomena.
But thats because of the growth of a number of the other offerings that we've got what we see is.
A slowdown in the in the uptake among alpha producing investment managers were not seeing that they're going to competitive solutions.
And if we were we'd say that.
So we have eliminated the competitive piece.
There may be a new new as I indicated with.
Research budgets within Alpher producing.
Or alpha seeking investment managers, but we havent seen we haven't seen it going to two new competitors and so that the area that we that we look at.
And why we characterize the threex that of the three of the three areas data analytics, we see as a short term slowdown.
The the conversion is just a timing question.
On the investment management piece on the investment manager analytics.
At this point, our our view is that it's a short term, but we're not certain about that for that particular segment.
So we do continue to diversify the markets were addressing and the products, we're offering within that segment.
Beyond just investment managers.
Okay. Thanks.
And then.
Regarding the the the lawsuit piece just how confident are you that you can get the data from another provider.
So this is an important market for us it's a big opportunity.
And.
I am highly confident that eventually we will find.
A new solution with a new provider that enables us to address this market opportunity.
Whether that's.
Whether that's.
Months or quarters.
I can't say right now, but I might my expectation is that it's closer to months.
Okay Fair enough and then lastly, jud.
I wanted to ask about the insurance exchange.
Just.
How should we think about the of the usage of the insurance exchange evolving recognizing it's still early.
I'm curious you know any sense.
Through your conversations with broker dealers to what extent do you think those broker dealers are looking to to really encourage or push their advisors into using the exchange versus leaving it up to each individual advisor to do insurance on platform versus off platform.
So.
The insurance exchange is.
Is.
Isn't important evolution of our platform kind of dynamics.
We've we've.
Already generating some very nice run rate revenue.
With only having opened up a few accounts as insurance carriers see.
Access to the type of advisor that's interested in the offering.
Among our client base that are going to be a number of of.
The clients that are interested in that because they have their own insurance offerings, but that's a that's a minority of our client base within the R&D offerings space within the smaller and mid sized independent broker dealer space within the regional broker dealer space and within that the national.
Broker dealer space, we expect that there will be a number of advisors within each of those channels that want to have the.
The use of an integrated insurance product that that.
That has the same onboarding technology. The same building technology. The same performance reporting technology as the rest of their businesses. So we expect that.
That over a longer period of time.
Any exchange that we that we add on has cancer.
Target addressable markets incrementally.
Over $100 million and in some cases as high as $500 million and we expect that over time, we will gain shares of market that approximate where we are already in our other businesses. So it might be 5% to 10% in the early years.
10% to 20% of that Tam in the middle years, and maybe as high as 30% at maturity many years out, but thats, how we think about it and we think about what the insurance exchange from the credit exchange.
Very significant.
Additional addressable markets that that brings to the advisor base Thats looking for Envestnet for solutions, and we expect that we're going to introduce additional exchanges in the relatively near term.
Because we've got demand for advisors that want the same exchange dynamic around additional services for additional products.
All right. Thanks, a lot.
Yes, we have bill Cuddy from JP Morgan.
Hi.
Good evening, so on camera Soc supporting Merrell private wealth.
How are you thinking about the opportunity to sell tamarac into more high net worth channels beyond its traditional large <unk> focus.
And what specifically do you think this relationship is kind of a one off opportunity or are there more opportunities like this for camera to expand its client set.
So what we have.
I want to say perfected because that's too strong well we have.
Refined and and battle tested.
Is.
Hey, reporting solution that works for high net worth individuals and the advisors that support them.
And what we've been able to.
Worked through over these last few years are are.
Easy to use.
Easy to read a great user experience interactions that create a digital connection between that already or that advisor and their high net worth client.
And enables them to through a client portal, which is hosted by Envestnet.
Not really expand the ways they touched that clients and provide.
Dynamic reporting.
It integrates.
Very nicely with with money guide on a financial planning phase is showing updates on on.
On on performance, but it also integrates with.
A five or six of the most common financial applications that yodle leafing apps that Yodlee provides which have proven very popular with high net worth individuals.
Things like net worth tracking budgeting apps cash flow forecasting.
And so the the.
The end client benefits from this unified presentation of their net worth their investments, they're held away holdings, including four one k. accounts cash value was insurance accounts, it's presented in a very in a very systematic easy to use way.
And what we found is that with the the.
And client base.
Of of.
Of the users of the of the portal.
First of all around.
Over 90% of our eye is using the solution have adopted it as their primary.
Means of communication with their end client.
So thats a very impressive number.
But what's even more impressive is that nearly 80% of the end clients of those advisors are logging on once a week or more to look at things like.
Client accounts, what's happened to network how are they doing how are they tracking against their big goals and they're big objectives are the on are they on track with their financial plan.
So the use of this capability.
Is powerful and it's it's a case, where the the ri a community has really led to hit the blaze. The trail they've been the early adopters and they've really been able to.
They've been they've been able to be the Disrupters. If you will in this whole wealth management ecosystem.
And as more our a's use that that solution.
The high net worth practices in other firms are looking to get the same benefits. So we're already working with several prominent regional brokerage firms.
One right here in the Midwest.
And in their private wealth businesses, we have others in the pipeline. So we do not expect this to be a one off thing we again expect that to be a natural progression of a market leading capability that we've been able to develop overtime working closely with our best clients.
Great.
Thank you for walking through that.
Switching gears, a little bit like we've had a quite good amount of market volatility. This year, we've talked in the past on valuations in your space limiting acquisition opportunities.
How are you thinking about the market volatility this year and the potential for that market volatility to make some of the targets potentially more attractively valued.
We find with.
The in the M&A space that there is with with what's largely privately held companies and private transactions.
Hi, there.
Is less direct tied to.
Might be a short term market swing and what happens with the.
With the valuation.
Certainly we would look to.
Do the best we can with with that and we've we've spent a lot of time, which I won't reiterate.
The the return profile that we have for both consolidating and strategic transactions. So we would stick to that discipline.
And if the market volatility impacts.
One way or the other either the performance of the business.
Or may affect the valuation.
Then.
That would increase the number of opportunities that are available to us, but again I think it's that overwriting discipline that is.
The.
The top criteria for us.
I'd say it a little differently I'd be a bit more positive about being able to find opportunities that fit our return on investment threshold.
In this market than there have been over the last year and a half or so.
Okay. That's helpful and just a quick one in the press release. This commentary about the 2 million dollar impact from portfolio Center in the 6.6 for Hi Tech is that a GAAP revenue impact or is that adjusted revenue impact.
Thats gap.
Great all right. Thank you for taking my questions.
Next we have Peter Heckmann with Davidson.
Hi, Good afternoon. Thanks for taking my question just can you give us an update on the Blackrock relationship and the integration with their solutions have we seen anything tangible in the numbers are so far yet this year or and or how might we see that manifest in the growth in the back half.
So we're making good progress on the technology integration.
We've got a we've got.
Progress on the I retire piece.
And we've got progress on a couple of the other things that were looking to integrate more closely into the platform.
We're seeing that.
Firms that we do.
Joint product planning with them and Blackrock is of course, a very important one but they're not the only one.
Do receive the benefits of kind of.
Streamlined onboarding.
In the.
Proposal.
Fund or strategist selection process.
And then just going through to the paperwork automation onboarding piece and so.
If you if you look through the numbers, you're going to see some I believe you're going to find it.
You're going to find out.
Indications of some.
Faster growth within assets under management.
And and some slightly beneficial fee rates because of that.
No I'm, not saying that that's directly or even majorly due to the blackrock relationship, but what we're doing with Blackrock and some other firms.
It has an effect on the type of business Thats being onboarded and what that means is more unified managed account business and a relatively less advisor as portfolio manager or EPM business. So we expect that we we had anticipated that even.
Maybe planned for that and the early results are encouraging from what we're seeing there.
Great, Okay, and then Pete.
Just.
I apologize if it's in the press release and I'm in transit, but what is the level of total acquired revenue contemplated in the third quarter and full year guidance.
Some of the contribution is about five to six percentage points of growth.
I think the.
The.
Total per quarter is around $15 million.
And thats on an adjusted revenue basis.
Justin Yes.
Okay. Thank you.
Yes, good back into queue.
Thanks.
And just another reminder, ladies and gentlemen that star one if youd like to join the queue for questions.
And next from Raymond James We have Patrick O'shaughnessy.
Hey, good afternoon, guys. So embedded within your full year revenue guide change is there any chance your outlook for subscription revenue within your wealth management segment in light of the really strong conversion number that you guys did in the second quarter.
Oh I'm sorry. It was a question is there any change.
Yes, so so there's some moving parts in your full year revenue guide you talked about higher asset based revenues because of the market you talked about lower kind of Yodlee a analytics revenues.
Any change to the <unk> subscription based revenues within your wealth management segment I think in particular, because you've put up a really good quarter in terms of conversions during the second quarter.
Oh I understand the question Patrick.
It's not material, it's not significant because.
The the way we expected the conversion. It was contracted is it's been an under its been the agreed upon deployment date everything so while we're happy that that that that was a big conversion it was fully expected.
All right got it thank you.
And then within the data and analytics segment is that going to be where most of your expense management efforts are really focused on the duration on the year, given that's where the revenue headwinds tend to be and then I guess bigger picture what do you see as kind of the acceptable long term margin for that segment.
So those are great questions the.
The longer term margin for that business.
We expect.
As we apply it and this is longer term as we apply.
Data science and machine learning to our.
Data normalization data reckless reconciliation and data integrity efforts.
We expect that that could be a 40% EBITDA margin business or more.
Longer term.
And we've been investing heavily in that business.
Again since we acquired.
Yodlee there has been roughly a doubling of revenue in just a little over three years and.
Like a six fold increase in EBITDA.
So we expect that that is going to can we expect the growth to be strong but.
We don't expect it to be as strong as it has been and we expect that there can be.
The balancing of investing for growth with investing.
For.
The markets that are more appropriately hours and by that I mean wealth management.
Banking and credit are what we are going to invest most mostly in for that analytics business.
Then.
More of the more of the efficiencies relatively more of the efficiencies are coming from analytics, then from well, but well also is generating more efficiency as a result of the of the of the organization changes we announced in January .
Okay. Thank you.
Yeah.
And next we have David Grossman with Stifel.
[noise]. Thank you hi, good afternoon, just a couple of quick clarifications first.
On the revenue guidance.
Is that including or excluding the deferred revenue adjustment for the acquisitions and.
Just a second point does does the deferred adjustment materially change in the back half of the year from with you reported in the second quarter.
So we've provided in the press release, both on a GAAP basis, and a non-GAAP basis. So you can see the guidance.
Oh and.
You'll you'll see that it does start to decline towards the second half the year slightly.
Right. So you know maybe I'm.
And I'm, sorry, if I missed this but.
It it there's a lot of moving pieces you know obviously in the back half of the year. It it looks like obviously the subscription growth rate the organic growth rate is moderating a little bit is all that due to the you know kinda analytics, you know kind of items that you kind of talked about earlier or is there more to it than that.
No I mean, you know the vast majority of the net effect goes to those three factors and those three factors are the first one is.
Probably a little over half.
Of what the the overall effect is the second one is.
Is is.
You know.
Maybe 35% in the third one is the balance of that.
Okay got it thanks for that and and then I guess just kind of a longer term question just about the model.
Yeah, you've done a lot to expand the breadth of your platform over the last couple of years some of it organic and some of it through acquisition and as you say, you're clearly finding obviously larger customers with more complex needs but.
Is there any signposts that you can give us.
Help us think through.
You know what the impact is on the revenue per client you know by virtue of adding this expanded you know kind of.
Capabilities to the platform.
Yeah, I can give you I mean, we don't report this but Ah, but we look at it.
The average revenue per our I explain it.
Six or seven years ago, it was less than $20000 per advisory firm per year.
Today, the average is north of 90, and a new clients are coming on at a nicely over $100000 Kirk.
Per advisory firm per year in terms of the of the of the subscription revenue per year that would be that would be one picture of it over a six to seven year period and thats.
That's the result of bringing out.
New products new offerings.
And we expect that that's going to continue we think that that there's significant upside in the revenue per advisor on the subscription side.
The asset based side has grown as well.
Over a longer period of time, the average asset based revenue per advisor has gone from around four or $5000 to around 12 over or $13000 per per.
Per advisor.
But that asset base and and there are other sources of revenue that we are getting better subscription based from the firms that employee those advisors. So you're seeing that growth coming up in the incremental growth rates, which are higher for subscription revenue.
That that's being derived from the enterprise clients. So.
We don't expect to provide metrics on that anytime in the near term in the near future but.
But we look at that and we are encouraged by the by the growth of revenue growth in revenue per advisor and growth in revenue per.
Per advisor at the firm.
Great and just to follow up one thing on that so when when you say over $100000 on some of the newer clients is that is that a pretty good metric to use on on the new sales then.
New clients coming on or coming on at that higher rate.
If its subscription based yeah, the new clients are coming from the new clients coming on have HCV equivalents annualized contract value equivalent of overall of over 100, and thats been trending up very nicely for a long time and part of that is the biggest part of that is more a more dynamic and broad product offering it's part of going deeper with existing clients.
But there was also a factor that the that the.
The size and sophistication of the client is growing as well.
Right, great well, thanks for those metrics and and then just finally I can't I don't know if you've covered this early or not but the the conversions have gotten a little more lumpy and the asset based business is there anything to read into that or is that is that just kind of the typical ebb and flow.
A function of the of the size.
Of the of the of the conversion.
Hi, so as we think about modeling out the asset base business, we should assume that conversions are going to skew down basically and youre going to just to add on the you're going to see an uptick in the subscription base conversions is that I mean, we've been seeing that we have not we have not guided on that we have not we have not thought through that completely but based on what we know of the pipeline today, you know looking out 23456 quarters.
It's it it's going to continue over the let's call that the near to the Middle term, we expect that will continue to skew towards subscription base pricing.
Okay, and that's already that we can take this up offline, but just one follow up to that is on.
You know the gross sales right ex the conversions they seem to have been.
Staying at a reasonable rate and the asset base business, so while you're seeing it on the conversion side. If you haven't necessarily seen it on the gross sales side is that a logical outcome here or am I missing something obvious.
No I don't think it is a logical outcome and they'll tell you why the the gross the non conversion grow sales are are highly reflective of current programs with current advisors. So as we add a new manager a new strategist as we as we add a new a new family of of impact portfolios to PMC is quantitative portfolio offering.
Then you are seeing that the that the existing sales are holding up very nicely because we've continued to bring new products. It so that heavily heavily tied to our existing advisor activity.
Subscription up.
Based conversions are tied to the kinds of new enterprises were bringing on through conversions and that is skewing towards larger conversions.
So then the the pricing is and our pricing, but revenue per client or advisor is what's helping keep that gross sales number up because like I said it looks like its.
Trending very nicely relative to the trend and conversions.
Right revenue, there's two things that are better holding it up.
Revenue per you know that kind of the share per existing advisor and then good getting going deep getting more advisors with existing customers.
So got it yes.
Yes got it great all right. Thanks, very much I appreciate that.
You are welcome and but I do think it underscores the organic growth strength of the of the core business.
Right.
Great. Thanks again.
All right ladies gentlemen, it looks like that does conclude our question and answer session I'd like to turn the floor back to Mr. Bergman for any additional or closing remarks.
I want to thank you for the questions are very insightful questions and.
And I.
Look forward to our next conversation, which will be in about 90 days unless unless sooner.
Thank you and this ends the call.
And once again, ladies gentlemen that does conclude our call for today. Thanks for joining US you may now disconnect.
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