This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk09: good day everyone and welcome to the investnet fourth quarter 2020 earnings conference call today's call is being recorded at this time i would like to turn the conference over to mr chris curtis division cfo and head of investor relations please go ahead sir thank you and good afternoon i'm joined today by our ceo bill crager and cfop derigo our earnings press release
spk06: supplemental information, and associated form 8K can be found at investnet.com under the investor relations section. During the call, we will be discussing certain forward-looking information. Such comments are not guarantees of future performance, and therefore you should not put undue reliance on them. We also will be discussing certain non-GAAP information. Please refer to our press release and SEC filings for more information on forward-looking statements, risk factors associated with our business, and require disclosures related to non-GAAP financial information. With that, I will turn the call over to Bill.
spk03: Thank you, Christopher, and thank you for joining us today. As we look back on 2020, we recognize how hard a year it was for so many people, the pandemic impacting every single person's life and for so many in devastating and tragic ways. We honor the incredible work of healthcare workers, and the frontline workers who have shown such brave resilience and dedication over these months. While the difficult and practical implications of the pandemic have played out, a digital rumble began to shake across the economic landscape. Cloud-based companies like InvestNet engaged from the first moment, leveraging our service and support infrastructure to help our clients navigate these disrupted times. We also spent the year paving the way toward an exciting and accelerated digital future. Last year, we took swift action to ensure the safety of our employees. We met the extraordinary demands of the year, managing historic account and trade volumes as we grew the company and improved the way we served our clients. We added a net 1.5 million accounts last year. completed 15 million service tasks, and executed an incredible 76 million individual trade orders. This was executed by our team as we worked remotely and while our clients worked remotely. We completed a significant and important initiative to streamline our organizational structure and add leadership talent, which positions us to operate more as one investment, both internally and also for the marketplaces that we serve. And despite the headwinds created by March market values, we grew impressively, delivering very solid financial results. We reported just shy of $1 billion in revenue, which is 10% higher than a year ago. And adjusted EBITDA grew 26% compared to 2019. And importantly, We charted the course for advancing a tremendous opportunity for our industry to better serve its customers, further expanding our strategic purpose, developing a bold investment plan to capture the sizable opportunity before us as we make financial wellness a reality for everyone. Over our history, InvestNet has been very successful in anticipating, investing in, and driving the future. We began 20 years ago as a TAMP, a turnkey asset management platform, a category we invented, and we continue to lead by a substantial margin. Over time, our capabilities expanded. We unbundled our own investment solutions from the core technology, enabling advisors in powerful new ways, opening access to the industry's largest marketplace of investment solutions and strategies. We launched the first unified managed account, the UMA, bringing multiple investment strategies into one brokerage account, improving how advisors could optimize asset allocation and tax efficiency within client portfolios. This powerful integration of technology with investment product made it far easier for advisors to deliver portfolio strategies while to help drive down the costs for end investors. We forged an integrated future of data and planning-centric advice for advisors to deliver to their clients. Our acquisitions of Yodlee in 2015 and MoneyGuide in 2019 were critical as we evolved into an industry-leading integrated wealth platform. Impact investing, overlay solutions, direct indexing, integrated access to credit, insurance, and just announced this week, trust services, The scope of what we are doing, the progress we are making in each of these areas, and the growth potential they represent for us are very important to note. The scale, capabilities, and how we utilize data are significant competitive differentiators for us, and we plan to build on it. Investnet is proud to work with thousands of firms, including 17 of the 20 largest US banks, 47 of the 50 largest wealth management and brokerage firms, over 500 of the largest RAs, and hundreds of fintech companies. We are the industry leader in wealth tech, supporting more than 106,000 financial advisors, 13 million investor accounts, and more than $4.5 trillion in assets. We have the scale and infrastructure to grow from here. Our consumer financial data aggregation capabilities are unmatched. 17,000 data sources, 470 million connected accounts, which grew by over 62 million last year, 35 million users, and also in the past year nearly 3 million households that benefited from a financial planning experience using our award-winning software. We and our customers financial services firms and the advisors who work for them are improving the financial lives of millions of people. This has enabled us to become the financial wellness ecosystem powering the industry into the future. We are using modern technology to create linkages and building out a network that becomes an evolving system, ever adapting, ever engaging, ever improving connections that the consumer defines the boundaries of and will call upon when, where, and how they choose. This is a bigger vision, one that will provide our customers the superpower to engage in intelligent, holistic servicing of the consumer's financial life. That's why we're accelerating our investments in the ecosystem. These investments, which I've been referencing for the past few earnings calls, are in three areas. We are making major enhancements to our already strong capabilities on behalf of our existing customers. We're making it easier for them to work with us, easier for them to leverage all that we offer, eliminating friction from the process. For instance, we're providing an integrated trading environment that will bring together the feature sets of InvestNet, Folio Dynamics, and Tamarack into a singular tool Advisors will have the entire universe of investment strategies and solutions just a click away. We're also digitizing and hyper-personalizing more of the end consumer experience with more use of data, intelligence, and insight. The second area is data. Data is embedded in all that we do. We've been redefining the way data is used to create better intelligence, insight, and guidance for advisors to help their clients. Nobody else has a data engine quite like this. InvestNet can connect the data from a person's daily financial transactions with our market-leading financial planning capability, which we've broken down into powerful, focused financial apps that tie into a financial strategy, and with a click, advisors can then execute on it. We are using more and more of the intelligence in our data to drive recommended actions. For example, our recently launched recommendations engine addresses the individual's needs against the backdrop of an extraordinary data set. We are seeing promising evidence as firms use the data to grow faster and discover new opportunities within their existing customer base. Digital experience is the third area of investment for us. We are on the cusp of making this intelligent, connected financial life a reality with our innovative digital environment for end consumers, powerfully taking the parts of a financial life and bringing them together in an extraordinary and accessible experience. We will empower advisors to offer this as the financial center for their clients in a powerful way that they have not experienced before. This is just the start of the progress that we are making. With InvestNet at the center of the financial wellness ecosystem, we can engage with future partners in incredibly value-creating ways. Our strategy opens a network of potential partnerships that expands far beyond our current marketplace. Beyond our walls, an existing network of investment managers, insurance companies, lenders, banks, custodians, broker-dealers, and RIA firms. An example could be in healthcare or even in personal wellness. We'll also open our platform and inspire third-party developers who can create new apps addressing emerging marketplace needs and or utilizing our infrastructure to engage underserved parts of the financial services market. In doing so, we gain access to millions of consumers. We can improve their financial lives by deploying InvestNet solutions through a broader network of FinTech companies and non-traditional outlets that are utilizing embedded finance as part of their strategy, while providing the essential bridge back to full-service advice within our advisor community. As the orchestrator of this large and growing ecosystem, the revenue potential for us is significant. While life changed over the course of the last year, in many ways, it also sped up. We sped up as well. Trends that have been emerging for years are accelerating at a faster pace, more digital, more intelligent, more consumer-driven. Consumer expectations have grown so quickly, whether it's a grocery delivery, mortgage approval, or the ability to open and fund a new investment account. And we are leading our industry in helping our customers meet the expectations of consumers now and into the future. I wrote about this in a white paper that we published earlier this week called The Intelligent Financial Life. Our supplemental deck includes a link. I encourage you to read it and watch the related video. In a nutshell, here's what it says. Today, most people have two distinct financial lives, how they interact with their money each day and then how they plan for their money into the future. Neither of these connects with each other, resulting in a complex challenge for the individual, oftentimes leading to extraordinary stress in their lives. The white paper was a call to action for our industry, a playbook for more deeply engaging and impacting the financial lives of consumers while unlocking tremendous opportunities for companies that enable this. What's required to empower this intelligent financial life is an interconnected ecosystem that brings it all together for the consumer. We, InvestNet, are uniquely positioned to deliver on the intelligent financial life by leaning into our ecosystem, expanding the ability for InvestNet and other participants in our vast and growing network to deliver what the consumer is demanding and to capitalize on this large and quickly growing opportunity. The outcome of this strategy is connecting people with their money and empowering more impactful decisions in ways financial consumers have not experienced before. For InvestNet, it means a broader reach into the market, faster revenue growth as the model is utilized, and more operating leverage from our increasingly scaled infrastructure, yielding a higher profitability in the long run. The opportunity to create value for all participants in our ecosystem is massive and growing. With InvestNet at the center of it, we can curate, connect, and orchestrate everything that can impact a consumer's financial life, empowering advisors and firms to reach deeper into relationships, doing more, adding value, creating growth. With our industry-leading footprint and capabilities, there is no better firm positioned to capitalize on this opportunity than InvestNet. And the time to do this is now. I'll be back with some closing comments. But first, let me turn it over to Pete.
spk12: Thank you, Bill. Good afternoon, everyone. Today, I'm going to review our results for the fourth quarter and full year and provide context for our 2021 outlook and beyond. Consistent with earlier in the year, our fourth quarter results were strong. Adjusted revenue for the quarter was $264 million. above expectations as we saw outperformance across all revenue lines. Asset-based revenue benefited from favorable net flows and continued adoption of higher value fiduciary solutions. Subscriptions-based revenue performed well driven by higher than expected usage in the data and analytics segment. Operating expenses came in consistent with our expectations for the quarter with a relatively low level of spending already factored into our forecast. As a result, our adjusted EBITDA of $65 million was also ahead of expectations, as were our adjusted earnings per share of 69 cents. For the full year, adjusted revenue was $999 million, 10% higher than in 2019, despite the significant market pullback in the first quarter of 2020. Adjusted EBITDA came in 26% higher than last year at $243 million. Our adjusted EBITDA margin for the year was 24.3%, three percentage points above the prior year. As we discussed in the November earnings call, this is not an appropriate starting point as we look forward into 2021 and beyond. Expense management and pandemic-related circumstances lowered our 2020 expenses significantly and unsustainably for the long term. Around $25 to $30 million of operating expense favorability can be attributed solely to an operating environment that limited travel, caused delays in hiring, and generally reduced spending activity. This is important context as we consider our outlook for 2021. As we built our spending plans for this year, we see three drivers of increase in our operating expenses compared to 2020. First is what I would call normal expense growth to support the needs of the business today. including supporting additional customer activity as the business grows. Normal expense growth typically is lower than our revenue growth as we've proven our ability to expand margin over time. The total increase in this category is around $10 million, or a little more than 2% above last year. Second is what I would characterize as a partial restoration of normal spending levels that we experienced prior to the pandemic for certain items. In this category, we've assumed a broad resumption of business activity over the course of 2021, but still at levels below where they were prior to the pandemic. In the second category, we're expecting increases in our travel and entertainment expense and fully restoring our annual marketing spend. This category also represents around $10 million of year-over-year increase in operating expense. Depending on how circumstances unfold, Some of this expense could be pushed further out if travel remains limited. Third is the acceleration of investment spending to capitalize on the sizable opportunity Bill described earlier. These investments will ramp up over the next couple of quarters as we add headcount and other resources in product engineering, marketing, and in go-to-market activities to accelerate revenue growth in the business longer term. In 2021, these investments account for around $30 million of increased operating expense. The spend in these three categories, combined with an increase in our asset-based cost of revenue, will result in our operating expenses growing faster than revenue in 2021, as we noted in November, effectively reversing the temporary margin lift we saw in 2020. Specific guidance for the full year of 2021 includes the following. Adjusted revenue growth of 10.5% to 12% compared to 2020. That's approximately $1.1 to $1.12 billion. By segment, this is driven by strong double-digit growth in our wealth business as we continue adding new firms, advisors, and accounts to the platform and deploy additional solutions through our installed base. We expect revenue growth and data and analytics to be in line with last year as we see ongoing momentum with financial institutions and FinTech firms while continuing to address pricing pressure in the analytics space. By revenue line item, we expect asset-based revenue to be up nearly 20%, reflecting the strong fundamentals of the wealth business. As usual, our guidance is market neutral to the end of the prior quarter, in this case, December 31st. Subscription revenue is expected to grow in the low to mid single digits, and we're expecting a decline in professional services and other revenue as we continue to deemphasize such fees. Adjusted EBITDA should be between $225 and $235 million, slightly below 2020, as the increase in operating expenses will more than offset the contribution from higher revenues. Adjusted earnings per share is expected to be between $1.95 and $2.08. This is down from the $2.57 we delivered in 2020, due to the modest decline in adjusted EBITDA and an increase in depreciation expense. Our guidance also includes the early adoption of a new accounting standard, impacting how we account for our convertible notes, which will lower EPS by 20 cents. Some additional color on our 2021 guidance and trends we expect to see during the year. We'll see in our first quarter guidance, which is included in our earnings release and supplemental presentation, that our operating expenses are still relatively low, reflective of the current operating environment. This is a big contributor to the EBITDA guidance for the quarter. As we expect to restore spending to more normal levels and ramp up our investment activity, operating expenses should increase somewhat more meaningfully in the second quarter and the second half of the year. Turning to the balance sheet, we ended the year with $385 million in cash. and a net leverage ratio of two times EBITDA, down from 2.1 at the end of September. Similar to last quarter, our $500 million revolver remains entirely undrawn, so we remain comfortable that we have the liquidity and flexibility to invest in growth opportunities both organically and through strategic activities without increased risk to our operations. As we support our customers' needs across the ecosystem and begin to benefit from the investments we're making now, We believe revenue growth can accelerate into the mid-teens within the next five years. Over time, EBITDA margins should reach the mid to upper 20s as we continue to benefit from our increasing scale. Thank you again for your support of InvestNet. At this point, I will turn it back to Bill for his closing remarks.
spk03: Thank you, Pete. The age of the intelligent, connected financial life is coming, and our industry will need to deliver this to consumers, an interconnected experience that supports a consumer completely from today's spending to tomorrow's plans, fully linked, intelligent, and accessible to help them make the best financial decisions when they need it, even when they aren't aware that they do need it. Connecting the financial lives of millions of consumers is a massive opportunity. It requires a financial wellness ecosystem, and that is what is emerging here at InvestNet. We are building upon the significant capabilities we offer the marketplace today. We are positioned to become the core, long-term, essential provider that helps the industry connect people much more powerfully to their money. With our expertise, data-driven intelligence, leading financial planning tools, integrated capabilities to execute trades, insurance policies, loans, trusts, and more, and a consumer-friendly technology to view everything in one single place, Investnet is the company that is best positioned to connect consumers' financial lives and make financial wellness a reality for everyone. I could not be more excited about this future. Thank you again for your time this afternoon. Thank you for your support of Investnet. With that, Pete and I are happy to take any questions.
spk09: Thank you. And at this time, we'll be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
spk08: One moment please while we poll for questions. Your first question comes from the line of Alex Cram with UBS.
spk09: Please proceed with your question.
spk01: Hey, good evening everyone. Let's start with the expense guide and I guess I'm interested in how you think about this 30 million coming in being kind of like a one-time step up in spending or a permanent part of the cost base. Sounds like this is a multi-year investment plan. So I assume 2022, this investing continues. And then maybe more specifically, I guess, given that you're saying you're ramping throughout the year, if the impact for this year is 30, I mean, how much is the real incremental investing that you're thinking about here? So maybe just flush it out. So we should be thinking about it in terms of one-time permanence and how long it's going to last. Thanks.
spk12: Yeah, Alex, it's Pete. Thanks for the question there. We expect to ramp it up throughout the year. So I think you're right. It won't be a full year impact in 2021. There will be a little bit more of an increase in 2022. And it will become part of our ongoing expense base. And so the increased revenue growth that Bill talked about longer term is what we'll uh, drive us through. We've, we've, uh, you know, uh, demonstrated expanding margins for, uh, 10 years now, um, and our ability to do that. And, uh, with, with this, uh, investment acceleration, we do expect to get back on that path, um, after, after 21 and 22. Okay.
spk01: And then secondarily, and I think this is more of a bigger picture question, and I don't know how fair this question is, but, uh, You know, obviously, you know, you're a public company and it seems, I mean, with your guidance, you're obviously suggesting a pretty big step down here in terms of the near term, you know, earnings of the company or EBITDA generation. So it seems to me almost a little bit you're seeing a lot of opportunities out there and you're acting very much like a startup, you know, fintech company. And we see a lot of that in the marketplace right now. I guess I'm trying to say is, you know, how do you balance that? You see a lot of this stuff happening around you. You're seeing a lot of opportunities out there, but you're still a public company that has obviously, you know, needs to deliver for shareholders and some of those also a little bit more near term. So I guess just trying to figure out your thinking in terms of we need to do this to really go after these opportunities as a public company.
spk03: Thanks, Alex. It's Bill. How are you? I hope you're well. I appreciate the question very much. I think what we see is a massive opportunity. And when you think about the component parts of what InvestNet does, we're uniquely positioned to really create a much more engaged, intelligent digital environment that our firms and our clients can offer to families and individuals to help them manage their financial lives. That's a massive opportunity for our company. and we've been driving towards that deliverable. I think we need to accelerate post-COVID the investment to get there faster. Why? Because the entire world has sped up and become far more digital over this past year, and the expectation and the end consumer is one that is that is purely digital, very intelligent, very engaged, very pocket technology that's with you every step of the way. Our industry today is a sum of parts. There are components. You have your cash. You have your bills. You have your investments. You have your insurance. Those are all doing odd jobs. What investment will do is bring those together, Alex. And as those come together, that will be a unique proposition for our clients to offer to millions of people. That is something that we're leaned into and we're investing behind. We think that the outcome for investors is a tremendous one. We think that we will be able to grow impressively during this period but then accelerate growth over the next years providing a bigger kind of accelerated revenue model and ultimately returning to mid-20s, high-20s type margin. And for the incremental investment that we're evaluating, we think that makes complete sense.
spk08: All right. Thank you.
spk09: Your next question comes from the line of Devin Ryan with JMP Securities. Please proceed with your question.
spk08: Great.
spk07: Good evening, Bill, Pete, and Chris.
spk02: Hey, Devin. Hi, Devin. Hi.
spk07: So I want to follow up, you know, really, first off, you know, enjoyed the intelligent financial life white paper. And so I appreciate, you know, the, you know, the urgency and the thought around leaning in on investments here, especially, you know, how things really sped up over the past year. And so, you know, understand the logic there. You know, we're obviously still in a pretty healthy revenue backdrop as well. And so I'm just to kind of follow on the last line of questioning. The environment to the extent it does shift, is there flexibility there? in that spending or, you know, do you really, these are, these are kind of critical investments that need to be made no matter what happens in the, uh, in the, in the revenue operating backdrop.
spk03: Yeah, we, uh, Devin, they're, they're discretionary investments that we are making for strategic purposes because we think that the, the long-term, uh, outcome is accelerated growth, uh, established, uh, and very significant marketplace leadership, as well as driving longer-term higher profitability for the company. And, of course, our revenue that we're generating today and will continue to generate throughout 2021 into 2022 is robust. I think it's very healthy, and I think it's something that, really puts us in a position to make these investments and have the confidence that we have that as we build out the ecosystem, that it will be broadly adopted by the marketplace.
spk07: Okay. I appreciate that. And then a follow-up on some of the newer asset-based solutions, just a great year of growth there, impact portfolios, overlay solutions, direct indexing. If you can maybe talk a little bit about the outlook for some of those initiatives in 2021, you know, how they connect into some of the newer investments that you're leaning into, and just more broadly, you know, how they kind of play into that view of kind of accelerating growth back into the mid-teens level.
spk03: Yep. Devin, we're very bullish on the category, and it goes beyond impact really into the you know, behavioral kind of engagement with investments and investment portfolios and the integration of this concept around behavioral impact and then your investment strategies. And being able to engage the consumer and have the advisor engage that consumer in an engagement model that really helps, you know, kind of just reveals those perspectives that the individual has and able to react to those with a portfolio that meets that perspective and then follow through with that from a performance reporting and ongoing communication standpoint, I think is a full circle solution. We're looking to open up our impact platform. Asset managers are certainly innovating quite a bit here. We want to bring best of breed to the marketplace. But we're going to wrap that asset management product with a lot of technology. That technology is going to be about discovery of perspective, execution of perspective, and then reporting on that perspective to see how that portfolio has performed. Again, it's a full circle, fully integrated environment. And again, that speaks to this integration of data, software, and solutions and intelligent kind of execution on that
spk02: It becomes far more personalized for the individual.
spk07: Okay, terrific. I will leave it there, but thanks very much.
spk02: All right, thanks, David.
spk09: Your next question comes from the line of Peter Heckman with Davidson. Please proceed with your question.
spk10: Good evening, everyone. Thanks for taking my question. Just on the mechanics of the early adoption of the accounting standard on the converts, does that just apply to the 2023 issue that's in the money? And how does it play with then the interest expense, the related interest expense?
spk12: Yeah, so this is Pete. Thanks, Pete. It applies to both of the tranches that are outstanding and basically assumes all the shares that are subject to that, whether we intend to settle it in cash or in shares, become part of the denominator for the per share calculation. That's the bigger impact. There is a small portion of the non-cash interest expense that comes out. But the main impact is the share dilution, share count.
spk10: Okay. So interest expense will then just consist of the cash portion of interest expense plus amortization of debt issuance costs?
spk12: Yes. Yes. The coupon is not part of the expense, but the coupon is – smaller impact because of the rate.
spk10: Got it. Got it. Okay. And then just as a follow-up, when we think about how some of this expense lays out, and I think you've addressed it a little bit, and I may have missed it, but just in terms of how much is it you're thinking of people versus other spend, and can you talk about your expectations for CapEx and CapLight software for the year?
spk12: Yeah, so of the spend, I would say about two-thirds of it is people, and the rest is in marketing. And this is of that $30 million investment. The... Capitalized software, again, it's based on assumptions depending on the type of work that we actually get completed over the course of the year, but I would expect that to tick up again, more so in the second half as the employees get on and get working. So I think we're at kind of a base level, $55, $60 million a year in terms of capitalized software, and that would probably tick up maybe another – possibly $10 to $15 million. All right.
spk08: Thank you.
spk09: Your next question comes from a line of Will Cuddy with JP Morgan. Please proceed with your question.
spk02: Good evening. Bill.
spk13: I want to frame your views on the financial wellness opportunity, and I appreciate the commentary earlier. From my understanding of the commentary, it seems like you're going to pretty dramatically increase your financial wellness initiative in the breadth of your offering. And what I'm hearing sounds more similar to digital wallets and neobanks than what I've heard in the past. And those have been like a different business than InvestNet historically, particularly with the banking component. So could you help us understand comparing and contrasting your view of the InvestNet approach to financial wellness with the growth of digital wallets and the neobanks? other than the distribution approach in your case through financial advisors and the neobanks direct to retail? And then appending onto that, this has been a mouthful already, appending onto that, what advantage does your approach have over some of the evolving approaches to this integrated financial wellness ecosystem?
spk03: Thanks, Will. I hope you're doing well. You know, we're uniquely positioned to bring these pieces together. When I think about the digital wallet space, I think about the banking space, that's a component of an individual's financial life. What they're not able to do is to connect that component of people's lives with the longer-term outlook and pathways to achieve the things that people plan for, whether that's their retirement or sending a kid to college or and even next generations. We have, InvestNet has, a tremendous infrastructure that has optimized consumer financial data with Yodlee into a wealth environment. And we've done that over the five plus years that we've owned Yodlee. We've optimized that to a degree and fine-tuned it within our software to create a high degree of intelligence. And to connect that with a series of which we've designed or third parties will design as we open up our code for third-party developers into our platform. You create virtual wallets. You create virtual daily financial life applications that are helping people track their finances, understand where they're spending, and begin to create recommendations as to how to create more balance. You connect that, Will, with our financial planning capability. It is the largest in the world. It is also the most, you know, kind of, merited in the world as well as highly regarded software in financial planning. What we've done over the last two years since we acquired MoneyGuy is really lean in on atomizing or breaking that software down into bite sizes. So FinApps that will address a specific question that you have. You know, should I buy or rent an apartment? Should I, you know... Should I lease a car or buy a car? How should I choose an insurance product? And you go through in these little bite-sized pieces, and they lead to answers. Those answers are able to be executed upon. And if you follow our path around the marketplaces that we're building, today we have $4.5 trillion in our investment marketplace. We've built out what carriers are calling the industry standard around an insurance marketplace. We're getting, you know, very, very strong initial uptick on our credit exchange. We just announced a trust exchange. You can expect something in the healthcare space. And we keep on building out around these marketplaces. You've got something that can track the consumer from their daily financial life and the implications in their long-term plans, create that pathway, and then execute on it. Execute on it. to make sure that the consumer is best served. And we're able to optimize that environment, optimize it for the benefit of the client, create a broader capability for the firms we work with, and ultimately bring down costs for the entire group of people. The individual, the firm that's servicing it, an investor that's able to do that far more efficiently than anyone else. So we see it as a huge opportunity, and we're not far off. What we've spent the last year and a half doing is migrating all of InvestNet's infrastructure to a singular cloud base, and we've been modernizing on top of that APIs and then modernizing the user experience. So we're very close to harmonizing all the technologies across InvestNet and being able then to deliver them in these bite-sized pieces almost as a service to the marketplace. And that's different than any business model that's out there.
spk13: Great. That's very helpful. Thanks for that, Bill. And then building on that, you mentioned about the revenue opportunity and it seems like there's a couple of different ways the revenue opportunity could work. Can you help us understand how you're thinking about the revenue capture from these strategic investments? Are these investments going to change how you generate revenue? Are we going to see more subscription as an ongoing theme? Any help there would, I think, be very helpful for us to understand the translation of these investments into future revenue.
spk03: Yep. Thanks, Will. So if we look at it from a traditional wealth market, it's about a $40 billion addressable market. So it's significant, and that's straight ahead of us. As firms expand and begin to engage more broadly. As those digital wallets become more full-service wealth platforms, you know, investment will be a supplier to those firms. Again, the infrastructure regulatory support scale, all the things that we do, and if you recall, I said we can deploy these things as a service. That opens up a whole new marketplace for us that is not within the current target addressable market for investment. So, again, We see an expanded addressable market as you see the rise of embedded finance, as you see FinTechs become multi-channel or multi-line service providers. They'll lean back on a firm like Investment and Investment uniquely because we're able to deploy our services the way that we will and open up new opportunities for us to distribute to a broader market.
spk13: Great. That was very helpful. Thank you. Thank you for taking my question. Thank you.
spk09: Your next question comes from a line of Ryan Bailey with Goldman Sachs. Please proceed with your question.
spk04: Hi, Bill, Pete, and Chris. Thank you for taking my questions. I wanted to come back to the question that Devin was asking on direct indexing. I think I heard you mention that you wanted to open up the platform. Do you mind explaining what you meant by that comment?
spk03: Yeah, absolutely, and thanks for joining tonight. So we've always been an open architecture platform, and so InvestNet has designed and developed our own direct indexing product. We call them quantitative portfolios, and now there's kind of an array of types of solutions that can meet all sorts of needs, and we can manage them at scale, and we have tremendous technology to do that and also provide tax overlays. But we also are opening the platform to other direct index providers. I know many firms are interested in this space, BlackRock, Schwab, others, Parametric. You can identify that this is a pretty strong trend. And what we want to do, again, is really become the marketplace for for advisors to access these direct index products. I see the framework of the index also having value into the future as we look at AI and how portfolios can be managed into the future and how advisors can take advantage of even the strategies versus the actual portfolios. And we see an opportunity to build a marketplace around those strategies into the future as well.
spk04: Understood. Got it. I suppose the kind of natural connecting or follow-on question is, do you think you'll have a competitive advantage in some of your own direct indexing products relative to some fairly large established players in the market?
spk03: You know, we do. I think that, again, we are open architecture, but we have the PMC team has the quantitative portfolios, so we like when those are utilized by our advisors, and you see the growth rates that we experienced last year, so clearly we're gaining a lot of traction there. You know, I think the advantage that we'll have is that they'll reside on our technology. We'll be able to look at overall client pricing when it comes to technology and product usage and other areas of leverage that we have to encourage advisors to take a hard look at our PMC quantitative portfolios. Got it.
spk08: Thank you.
spk09: Your next question comes from a line of Chris Donat with Piper Sandler. Please proceed with your question.
spk11: Hi. Good afternoon, everyone. I want to start with one sort of, if you will, backward-looking question, then do a forward-looking one. So I'm looking at slide 18 of your deck, and that's the one that's got the direct indexing, overlay solutions, and impact portfolios. And we see the asset growth, you know, far outpacing the advisor usage. Can you talk a little bit about how you got to that place? Like, what are the – are these the advisors who've adopted these products, the ones who have the biggest assets and you targeted them from a marketing perspective, or are they the most forward-looking advisors? I'm just trying to understand the dynamic of the advisor adoption going on there.
spk03: Yeah, Chris, I think that the profile of the advisor is one that, you know, is looking, is adding value to their clients and, those that are adopting are finding a lot. So let me just back up. Those advisors, the early advisors who are adopting, are looking and understand that additional value can be added to their clients by holding individual security and providing these overlays, whether it's a tax overlay or an impact overlay. And that's something that they're utilizing. And then they're adopting a lot of it because they've been very successful in engaging their clients with clients with these solutions. You know, again, it's early days, and that's why we've got such a promising outlook for the continued growth of these because, you know, there's a handful, when I call a handful, it's hundreds, thousands of advisors who are utilizing this, and then we believe that it'll, you know, be something that most advisors will understand adds a ton of value and will look for these types of solutions going forward. If you look at the evolution of the industry, too, you see how the value-add kind of creeps along, and then all of a sudden it begins to explode. You know, SMAs to UMAs to, you know, these integrated portfolios to now kind of these really value-added type of strategies that we're offering.
spk11: Okay. And, yeah, I wanted to pivot from sort of that perspective how we got to where we are now to then thinking about your, the investments you're making in this year and beyond. Because I think the comment was about a third of that would be marketing. How do you persuade, because it sounds like you're going to have a ton of, of apps you're pushing at advisors. How do you persuade them to adopt them for the benefit of their clients? It sounds like whatever you're, going to be a supermarket that keeps adding shelf and shelf and shelf or aisle and aisle. And I'm just wondering, is it possible for the advisors to digest all the different things that you're presenting to them in a way that helps your revenue?
spk03: Yep. I think that's what, you know, you're hitting on a key part is education, awareness and then education to support them through that process. So you take you know, the educational support that we're offering to advisors building out those capabilities to help them understand how to utilize the insurance exchange, how to utilize the credit exchange, how to integrate those solutions into the portfolio strategies. We're using the money guide tool to look, you know, to help advisors look more holistically at households and identify opportunities. We're using data, and the recommendation engine is really the powerful engine that we've got that, again, is very competitively differentiated, Chris, where we can tell an advisor that these are the opportunities that they have in their book of business for an engagement around insurance, for an engagement around credit, around impact, et cetera, and identify that for advisors. The early results we're getting from that are very promising. I mean, firms that are beginning to utilize our data engine are growing much faster than prior. They're identifying, you know, opportunities in their books that they were unaware of, and they're able to close those pieces of business. So that's part of it. I also believe that, you know, as we get to market, we're going to be seeking to take those solutions to a broader customer base. So we're going to invest in marketing in those areas as well. The whole thing, you know, what I just described is really part of the ecosystem and bringing the data together with the solutions and providing the technology for advisors to engage at a different level with their clients. It's a tremendous opportunity for advisors. It's really like a superpower. As you begin to engage with a household and you can help them bring these pieces together, it is incredibly powerful for them.
spk11: Okay. Okay. Thanks very much, Bill.
spk02: Yep, thank you, Chris.
spk09: As a reminder, if you'd like to ask a question, please press star 1 on your telephone keypad. As a reminder, if you'd like to ask a question, please press star 1 on your telephone keypad. One moment, please, while we poll for more questions. Your next question comes from the line of Surrender Thinned with Jeffries. Please proceed with your questions.
spk05: Thank you for taking the question. I'd just like to ask a clarification on one of the earlier questions or comments that was made. So is there about, I guess, investment being combined with Tamarack and fluid dynamics into kind of, is there a platforming strategy going on here where everything is kind of being re-architected into like a single code base? Or can you help me provide a little bit more color on that comment?
spk03: Yeah, certainly. How are you? Thank you for the question. As I said, we moved the data set of the firm into a unified cloud strategy, and that helps us bring the feature set of these technologies much more closely together. So as you look at the way that each of those technologies has evolved, they've been kind of serving this vast range of financial advisers, And we've brought all of that capability back now to a configurable, tunable capability for you, one advisor, and really to help customize your practice across all the range of capabilities that you can possibly imagine. the power of being an RIA and managing a billion-dollar portfolio and using the Tamarack tool to rebalance and to manage and to set rules around the portfolio, all the way to the block trading capability that we have that serves some of the largest financial institutions in the country. So that scale and then that uniqueness is something that we think is incredibly powerful and, again, entirely differentiated from the rest of the marketplace. So in this technology, you'll be able to click right next to your portfolio and say, yes, I want to impact overlay. Yes, I want to tax overlay. All of these capabilities coming together to a click of a mouse powerfully in the advisor's hands.
spk05: Got it. And then in terms of the questions around the expenses and stuff, if you think about the opportunity, around the amount that's being, can you provide a little bit more color on, on maybe if you feel that the opportunity might be bigger, the ability to maybe flex or spend more. And then how should we think about the level of spend at this point that, that you guys are thinking about relative to the historical, was there some degree of underinvestment perhaps? I mean, you guys were fairly, I would say, you know, disciplined in terms of just managing the margins with, with the revenues and stuff. And so how, how should we think about that dynamic?
spk03: Yeah, certainly. We have not underinvested in the business. If you, you know, I spoke about some of the milestones and things that investment is, has innovated over the years and we continue to, and this is not a standing start for us. This is a running start at a future that we think can be tremendously impactful. So as we looked at, um, you know, how do we, um, uh, leverage the unique capabilities that investment has, competitively differentiated from the rest of the market, our data set and our understanding and use of data, the breadth of our technology, including the market-leading financial planning, connected to more and more solutions, we think there are unique and valuable ways for us to distribute that to our clients and intelligent ways to really use the data to help advisors make decisions on behalf of their clients. This is an incremental investment, but it's strategic in a way that I think creates a distinct competitive advantage and marketplace position for investment. And will accelerate our growth. So, you know, when I look at this and we discussed it for, you know, as we were discussing this, you know, you lean into opportunities like this. And, you know, you have a very good understanding if you're If you follow InvestNet, which you have for 20 years, you understand our track record, you understand how we lean into innovation, and then given the capacity and capabilities that we have, this is the next logical step for us.
spk05: Got it. That's very helpful. And then just as a slight corollary to that, what about being able to, you know, spend a bit more? I mean, obviously, with startups, they, you know... profitability just doesn't matter. And so to the earlier comment about there's just a lot of innovation out there and how you're thinking about why the current level that you did decide upon.
spk03: Yeah, because, you know, I appreciate the question very much. And you look around and you look at some of the transactions that are being done in our space and you look at the multiples on those transactions and the times EBITDA that we understand inside those transactions. and the valuations are significant. Those companies are investing to get to where we work, not to where we are today or where we're headed, to get to where we work. So there's a tremendous value in this space. We have spent invested dollars and made a lot of progress across our cloud and across the modernization of technology to now accelerate the bringing together and deployment of that to the marketplace we think is incredibly valuable. We tinkered with the investment amount quite a bit. It's not an arbitrary number. It's one that we think we can execute on and will have the impact that will drive the faster growth in the years ahead.
spk05: Got it. Your comments are very helpful. Thank you.
spk09: Yep, thanks. Ladies and gentlemen, we have reached the end of the question and answer session, and I would like to turn the call back to Mr. Bill Krager, for closing remarks.
spk03: Thank you very much, Hector. We appreciate everybody's time this afternoon. Our results in 2020 are the hard work of an extraordinary group of people. I'm very proud of the investment organization as we went remote and supported our clients with historic volumes and we improved our service levels during that period of time. It shows you what we're capable of. The outlook for 2021 is based on our deep conviction that investment will power an essential ecosystem that drives the future of advice. So, you know, hopefully you understand and we're conveying our enthusiasm and excitement about the future because it's something we believe deeply in. I want to thank you all for spending the time this afternoon. Please be healthy, and I look forward to our next conversation. Thank you.
spk09: Ladies and gentlemen, this does conclude today's conference. You may disconnect your lines at this time. Thank you all for your participation.
Disclaimer