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spk05: Good day, everyone, and welcome to the InvestNet first quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, today's call is being recorded. At this time, I would like to turn the conference over to Ms. Stephanie Dawkus, Investor Relations, Thank you. Please go ahead.
spk00: Thank you, and good afternoon. With me on today's call are Bill Krager, Chief Executive Officer, and Pete Dorigo, Chief Financial Officer. Our first quarter 2021 earnings press release supplemental presentation in associated form AK can be found at investment.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 required disclosures related to non-GAAP financial information. 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 a prepared remarks. With that, I will turn the call over to Bill.
spk04: Thank you, Stephanie, and thank you, everyone, for joining today. It is good to be speaking with you. InvestNet is building the ecosystem for financial wellness, connecting actionable data seamless technology, and the deepest set of solutions to enable an intelligent financial life. We are uniquely positioned to do this, and we are investing to execute on the significant opportunity that we see for our company. This will drive faster growth, ultimately greater profitability, and we believe much higher value for investors. Today we plan to highlight the following. First, the progress we're making towards creating the ecosystem for financial wellness. Next, I will discuss the scale we bring to the market and how it enables our strategy. We'll spend time on the opportunities we see for revenue growth acceleration. This includes capturing more of the existing addressable market. Second, modernizing the digital engagement marketplace to connect clients' questions to advisors and actionable solutions. And finally, opening the platform for expansion to more solutions providers and developers. I'll then highlight the organizational progress that we're making. Pete will highlight the company's strong financial performance in the first quarter. And then Pete and I are looking forward to your questions. So let's start. Let's start with the progress that we're making. During the first quarter, InvestNet continued to deliver strong financial performance. We executed high volumes of activity and advanced our strategic position as the financial wellness ecosystem provider for the industry. The ecosystem provides the tools and intelligence to our clients to power an extraordinary value proposition for consumers. This is an intelligent financial life connected to from the daily cash that people spend to the long-term goals they seek to achieve? How can people optimize the impact of their financial decisions? How does one decision impact another? How do people become more confident in the decisions that they're making? We are answering these questions with technology and data and access to an industry-leading network of financial solutions which we know is the financial wellness ecosystem. During the quarter, there were important examples of how we are advancing this vision. With the launch of our money guide borrowing blocks, clients are empowered to make better credit decisions. In a click, advisors will access a full range of credit offerings in our advisor credit exchange. You see, the consumer questions, the advisor answers and is able to execute. all of this intelligently connected. The acquisition of Harvest savings and wealth technology leverages our existing bank relationships and brings capabilities that opens all of a bank's accounts to our addressable market. For instance, savings accounts, creating a much broader solution set to this important channel. Harvest gives banks the ability to use savings accounts as launch points for people to plan for their future enabling micro-savings which can connect to investment accounts, again, intelligently connecting people's financial lives, offering answers, and the ability to take action. We also announced the launch of TruSendant, a network of trust capabilities that benefits advisors by streamlining the process of establishing trust accounts and benefits end clients by bringing down costs and account minimums. This capability is connecting to our legacy studio, which helps family develop estate plans for next generations. Once again, answering questions, supporting decisions with the ability to execute, all intelligently connected. Each of these examples show our vision in action, providing practical, actionable information to address a person's financial question or need, intelligently connecting the dots of their financial life. We are extending these capabilities to our full suite of solutions, significantly broadening the range of intelligent connections, in each case powering more insights and more actionable results. It is important to understand the scale and activity of what we do and how it enables us to achieve the opportunity that we see. Today, we serve $4.8 trillion in assets. We power more than 2 million financial plans a quarter. During the quarter, we executed 50 million trade orders, onboarded 42 billion in conversions. We service 500 million aggregated accounts each day. We have relationships with over 5,200 companies, which is up from 3,200 companies just three years ago. Leveraging the scale of what we do while meeting the growing demands of our clients also enables us to extend the services and solutions we offer, and conveys the possibility of what's ahead. We have built and we are utilizing the foundational essential building blocks of the financial wellness ecosystem. This scale is key to executing on the growth strategy we presented to investors last quarter. I want to spend some time on revenue growth accelerators. We have three areas of focus to accelerate our revenue opportunity. Our first focus is capturing more of the addressable market that already resides on our platform. Asset-based solutions are an important part of this opportunity. In the first quarter, solutions such as overlay, impact, and direct indexing continue to post strong double-digit growth rates across assets, advisors, and accounts. We now have over 20,000 advisors accessing solutions through more than 400,000 accounts representing more than $40 billion in assets. But this is just a small fraction of the captive addressable market that we have within our current account and an asset base. And our organization is focused on going deeper. The powerful advantage we have in doing this for these solutions and other important focus areas is our data recommendation engine, which provides a depth of actionable insights which changes how customers can achieve their important objectives while accelerating InvestNet's growth. I want to spotlight a use case of transitioning brokerage accounts to managed portfolios. A large bank client of ours has made a push towards more goal-aligned managed portfolios to meet the long-term needs of their clients. They are users of our managed account platform, and as we engage with them about their goals, we introduce them to our end-to-end data framework approach, which helped identify the scope of opportunity inside the current brokerage business. We identify the accounts most likely to benefit from the managed portfolios and then help the banks provide actionable tools to their advisors to engage these accounts. The results are important to note. We have observed a doubling in conversions since recently launching the capability to all of their advisors. This is meaningfully ahead of the activity our client had seen in the past. This is just one example, just one client and one use case. As we step back and extrapolate this opportunity to more firms and more use cases, like tax overlay, impact, direct index, brokerage to managed accounts, rep advised to fund strategist portfolios, credit opportunities, trust, insurance, and beyond, it becomes apparent how we can benefit customers, create opportunity for our clients, and execute on a near-term attainable and large growth accelerator for InvestNets. Our second growth focus is on modernizing the digital engagement marketplace, seamlessly connecting consumers' pressing financial questions to the execution of the solution by the largest network of advisors in the industry. We are launching a game-changing client engagement portal that we are confident will become the leading digital storefront for the industry. These tools make advisors and their offerings accessible in real time from anywhere to answer the questions that their clients have. It is a superpower for advisors, and as financial lives become more and more fragmented, the client portal becomes the hub for client engagement. The intelligence of our financial planning infrastructure connects to the portal and threads the consumer's experience to actionable services to achieve their near and long-term goals. To help advisors execute on these opportunities, we are more seamlessly connecting all solutions and exchanges to all advisors. We are also rolling out a new trading platform that brings together the best of all of InvestNet's leading capabilities to advisors across every channel. The third focus of our growth strategy is to open our platform for expansion so our capabilities and data set are enabling the greater ecosystem of solution providers and developers. This past quarter, we announced the launch of MoneyGuide Engine, which opens financial planning APIs to the industry, and over the coming quarters, we'll bring to market one complete ecosystem of APIs for the entirety of the InvestNet universe. This will do two things. One, it will open up distribution of our solutions to the fintech and embedded finance marketplaces. And secondly, it will open InvestNet's financial wellness ecosystem to a greater array of third-party providers, creating more and more choice for our clients. This universe of APIs will enable us to power financial wellness for more people and will drive growth for InvestNet. Here's a brief update on organizational progress. Let me take a moment to shine a light on the immense effort of the InvestNet team. Across our business, activity is elevated. We are working remotely. We are making progress on our vision. We are integrating to bring the power of InvestNet to all of our clients. and we are driven by an important purpose. The team is making this happen, and I am proud of the work that we are doing. It takes discipline and commitment to achieve our goals. The organization is aligned and moving forward. This quarter, we onboarded key new leaders across our business, including a new chief marketing officer, a new chief data officer, and a new head of market intelligence. as we continue to sharpen and align the organization to make faster progress. We now have the leadership and talent to operate as a more streamlined organization and to capitalize on the large opportunity that we see ahead. We posted strong results and have enhanced our capabilities across the platform last quarter. We've enhanced the organization. We will lead and support the industry every step of the way. Investment is building the ecosystem for financial wellness, connecting actionable data, seamless technology, and the deepest set of solutions to enable an intelligent financial life. I'll be back with some closing comments in a moment, but please let me turn it over to Pete.
spk03: Thank you, Bill. Thank you, everybody, for joining the call this afternoon. I'll review our first quarter results, provide an update on our outlook for the second quarter and the full year, and review our progress on the accelerated investments we discussed on our last call. Our first quarter results were strong and exceeded expectations. Adjusted revenue for the quarter was $275 million, 11% above the first quarter of 2020. Data and analytics outperformed largely from higher platform utilization, while the wealth segment was IN LINE WITH OUR EXPECTATIONS. RECURRING REVENUE THIS QUARTER WAS 98% OF ADJUSTED REVENUE. ADJUSTED EBITDA WAS $68.3 MILLION, 25% HIGHER THAN THE FIRST QUARTER OF 2020, DRIVEN PRIMARILY BY THE STRONG REVENUE GROWTH. ADJUSTED EARNINGS PER SHARE WAS 64 CENTS, 3 CENTS HIGHER THAN OUR GUIDANCE FOR THE QUARTER. And looking forward to both the second quarter and the full year, we're updating our guidance as follows. For the second quarter, we expect adjusted revenues to be between $281 and $284 million, up 19 to 21% over 2020, as the business benefits from higher subscription-based revenue, strong flows, and market appreciation in the first quarter. Adjusted EBITDA to be between $60 and $62 million, 8% to 11% higher, as we anticipate beginning to restore some of our pre-COVID expenses in Q2, and EPS to be 53 to 55 cents per share. For the full year, we expect adjusted revenues to be between $1,138,000,000 and $1,148,000,000, up 14 to 15%. Adjusted EBITDA to be between $230 and $236,000,000, and EPS to be between $2.03 and $2.10. To add context, with an increase in revenue expectations, we may have expected a greater increase in EBITDA as well. We closed the acquisition of Harvest in April, and Harvest has a strong pipeline with current and potential bank customers, which elevates our confidence that Harvest will approach breakeven in early 2023 on a standalone basis. We also see revenue opportunity to support digital banking initiatives within our bank channel, potentially accelerating their revenue growth. But for this year, Harvest's operations will be an offset to that corresponding EBITDA increase, and it's a difference of around $5 to $7 million in 2021. Turning to our accelerated growth investments, which we introduced last quarter, We expect these investments will ramp up throughout the year as we add people and other resources in product and engineering, marketing and sales, and go-to-market activity. There wasn't a lot of expense anticipated in the first quarter, but we have ramped up our recruiting team, and we will see that hiring begin in Q2. We expect to provide additional information related to hiring progress and future earnings calls. And we continue to expect the investments to account for roughly $30 million of operating expense during 2021. As a reminder, that $30 million, roughly $20 million are resources to support technology initiatives and roughly $10 million of expenses related to those go-to-market marketing and sales activities and resources. Additionally, we expect these investments to begin to generate incremental revenues in the second half of 2022. and continue to increase thereafter as we create a better, more streamlined ecosystem which elevates our value proposition to existing clients and expands our total addressable market. The financial implications should be powerful as we unlock access to the addressable markets Bill discussed, realizing greater depth of relationships with our existing client base, increased adoption of portfolio solutions within our captive addressable market, and strengthening the engagement between advisors and their investor clients. By 2023, we expect to be driving higher revenue growth and growing profitability. As the marketplace evolves, we are updating the key performance metrics we report. While advisors' accounts and assets will continue to be important, we are emphasizing internally the ways we measure the connectedness of the ecosystem as we focus on a wider variety of participants that will add significant value in the future. We mentioned earlier the 5,200 firms with which we do business. These companies are clients, but this number does not count the thousands of product and service providers, such as asset managers, fintech firms, insurance carriers, lenders, and custodians that are part of our growing network. We will be providing greater detail on ecosystem contributors over the coming quarters. Turning to the balance sheet, we ended March with $372 million in cash and debt of $862.5 million. The outstanding debt consists of two tranches of convertible notes due in 2023 and 2025. Our $500 million revolving credit facility was undrawn as of March 31st, and our net leverage ratio at the end of March was 1.9 times EBITDA. Thank you again for your support of InvestNet, and I will turn it back to Bill for his closing remarks.
spk04: Thank you, Pete. InvestNet, our team and our roadmap, is leaned into the future, a future that makes financial wellness a reality for everyone, a future we are uniquely positioned to enable, a future with a total addressable market of more than $40 billion across the financial wellness stack. enabled through our financial wellness ecosystem, which is differentiated from every other provider as a fully connected, open architecture, hyper-personalized wealth management platform. With solutions, engagement technology, AI-powered recommendations, financial planning, and data analytics, InvestNet's fully encompassing ecosystem enables advisors to provide their clients with a comprehensive view of their financial health connecting people's daily financial lives to their long-term goals. We are consistently posting strong results. We are leveraging our scale. We have industry-leading capabilities across the financial wellness solution set, and we are driven by a clear and winning strategy. We have the right team, and we are focused and investing in the right capabilities and the right opportunities. Before we open for questions, I want to highlight that we'll be hosting our inaugural Investor Day in June. Also in June will be our Advisor Summit. Both events will be virtual this year, and there will be more details about timing and logistics in the coming weeks. I am excited about the progress InvestNet is making and the opportunity in front of us. I'm excited about creating the intelligent financial life and value for all of our stakeholders. advisors, consumers, employees, and investors. Thank you again for your time this afternoon. Thank you for your support of InvestNet. With that, Pete and I are happy to take your questions.
spk05: Thank you. We will now 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. One moment, please, while we poll for your questions. Our first questions come from the line of Devin Bryant with JMP Securities. Please proceed with your questions.
spk09: Hey, good afternoon. Thanks for taking the questions.
spk04: Hey, Devin, how are you?
spk09: I'm doing great. Appreciate the detailed overview. I guess I just want to start on a question related to Yodlee. Obviously, you know, watching here in the market, it looks like they just raised capital at a $13 billion valuation numbers. Keep moving higher and higher. And so clearly we're in a backdrop of elevated evaluations and strong evaluations. But, you know, I think a lot of interest in businesses like Yodaly. And so I'm sure you'll continue to iterate on the evolution of that business. But. Just kind of curious if you've kind of put more thought into or more interest in kind of thinking about ways where that business could be separated, just given, you know, that point around such strong evaluation, such strong demand for that type of business.
spk04: Yeah, absolutely, Devin. And, you know, I think one of the things I'd spotlight is in my comments, you know, we talk about how we're creating these connectivity across our platform and generating a lot of the recommendation engine and really advancing the InvestNet data vision. And it really points to the optimization, I think, in the space on the utility of the data. A component of that is Yodlee for InvestNet. So the daily transactions, the daily footprints that Yodlee is tracking on a consumer basis, matched up with the long-term data we have around our money guide planning and the investment accounts and the InvestNet platform is a very powerful combination of data that we're beginning to utilize in really profound ways. So that's the first point. And it's an optimization that's been in progress for a long time here, but it's really beginning to evidence itself on the desktops of our employees and the desktops of advisors. But Yoli, at the end of the day, is one data feed that we take into our total cloud-based environment every night, just as we take in a custodial feed or a pricing feed. And, you know, I think our DNA business is a tremendous asset for us. Again, we've optimized it in the core wealth business, and it continues and will continue to drive our ecosystem. But we see the same thing you do. We see the market, the value of the asset, more than it has in the past. We look at the valuations that are out there from a private standpoint. And I would just say that we will act on that, on the valuation proposition, if and when we see the right opportunity for the business and for our shareholders, completely recognizing the backdrop that exists from a valuation standpoint today.
spk09: Great call, Arvind. Thanks so much. And then maybe just to follow up on the Harvest acquisition, you thought that was interesting and you appreciated the relatively smaller transaction. But I'm just kind of curious how you guys are feeling right now about your broader suite of products and capabilities into the bank channel. Is this rounding out for you or is this more opportunistic as it maybe came to you as an opportunity? And as I think about kind of the digital account opening tool within that, it sounds pretty interesting to me and just kind of curious how much of an opportunity exists to leverage that either within existing relationships or is that kind of an easy way, you know, to kind of present value to newer relationships? It seems like a kind of pretty obvious opportunity for people that don't have that capability.
spk04: Yep. You know, I'm excited about this transaction. Not very significant from a purchase price standpoint. Pete highlighted some of the EBITDA expense we'll take this year as we transition that into our fuller suite of solutions, so important to note. But the capabilities that it offers to us really helps us expand our value set to the bank channel. So not only today are we able to address and to serve investment accounts at the bank, we've now leaped over and able to address all the savings accounts that a bank has. And inside that savings account, we have a planning mechanism that helps a smaller saver kind of begin to plan for long-term goals within their savings account and connect that seamlessly to investment accounts. So you can see there where the fiber that Harvest provides to us really greatly expands the footprint that we can penetrate the bank market with. And so we're very excited about that. And I look at the suite of solutions today that we can offer in that bank channel, Dev, and you kind of hit on that in your question. I think it's important to note Harvest from a savings planning standpoint, connected to investment accounts, whether those are at the discretion of the consumer through the robo tool that Harvest offered, or the full suite of capabilities on InvestNet's investment platform, tied back through our comprehensive reporting tool that can look into the trust environment, the wealth environment, bring those pieces together for the bank. Our new trust platform, enabling banks who do not have a trust capability to offer trust services to clients that it's suitable there. We have our ABE AI, conversational AI tool that helps automate and provide service to the bank channel. And, of course, Yodlee. the data package that we're able to offer to banks. As we bring those pieces together, there is tremendous leverage. There's leverage from a pricing standpoint, product standpoint, and then data that we are able to, you know, kind of utilize as we expand our footprint in the bank channel. So something that we're very encouraged by. Oh, and then I didn't want to neglect the other question is an important one around the account opening capability in that With Harvest, we've got an account opening platform that kind of stretches across all the different environments, brokerage, the insurance platform, trust, all those areas. But what Harvest brings to us is to extend that to the consumer. So the consumer begins to open the account themselves. A lot of data input that gets pushed to the consumer comes back through the advisor, seamlessly and digitally opening accounts, lowering our administration costs, and speed to open an account. I think it will have a meaningful impact.
spk09: That's great. Well, I really appreciate it, Bill. I'll leave it there and be well.
spk05: Thank you, Devin. Thank you. Our next questions come from the line of Alex Cram with UBS. Please proceed with your questions.
spk01: Yes. Hey, good evening, everyone. I want to touch upon that example that you gave with that bank, and I guess upselling, if that's the right way to put it. But when you described it, it sounded a little bit of manual and labor-intensive, and maybe it just came across that way because you're giving us a lot of detail there. But I guess I'm trying to ask, it's is that where a lot of the investments are going in terms of manpower because it is a very tedious manual process or examples like this, you know, other opportunities, I guess, with examples like this to really automatically scale a lot of this. So I guess what I'm trying to say is, like, how do you take this one example and maybe scale it to 100,000 of different banks very quickly and what do you need to do there?
spk04: Yeah, absolutely. I hope you're doing well. Good to talk to you. Thank you for the question. So it's actually the opposite. You know, what we've been able to do as we work with that particular bank for this particular opportunity is we looked at their book of business. Let's call it $25 billion in brokerage assets, able to identify in there very quickly $8 to $10 billion of opportunity for them, and we're using our data recommendation engine to do that, not manual at all. We're automating an AI tool that is reaching through that book of business very quickly, surfacing a total addressable market for the bank. The bank then is able to – we're able to identify the accounts on behalf of the bank. Their advisors are able to tap on the shoulder of those accounts and say, hey, we've got this value proposition. And then the uptake, the uptake from September 2020 to today has been consistently – consistently from the month that we launched it, 50% increased flows for every month since we launched it to all their advisors in September. So it's a highly automated, highly AI-driven, scaled offering that that's just one use case. But let me extend that. Let me talk a little more broadly as we step back. We serve $4.8 trillion in assets today. We are building use cases around brokerage to manage accounts. That's one of them. Another use case, taxable accounts. As you know, one of the headlines absolutely these days is capital gains taxes, right? Inside the $4.8 trillion, we're able to identify a very significantly sized captive addressable market on our platform that would benefit from tax overlay. Okay, not only that, which firms, which advisors, which accounts? We are automating a digital marketing capability that our specialist team is connecting to the advisor, tapping the client on the shoulder and saying, hey, this is a benefit for you, that we yield X in tax alpha for you. We're able to deliver that at scale and penetrate a captive addressable market that I would call very significant. In the supplemental deck, we highlight kind of how that works. That works a little bit in the slide, and I'm just flipping to get to the page of the slide, but it's page eight. Current existing client relationships. But then in each of those spheres are use cases where we'll be able to automate this recommendation engine to identify opportunity, connect with the advisor, help the advisor close accounts. And then, Alex, the last point I would make is that You know, by the end of this year, our AI tool, our data set, the recommendation engine that we've been making investments and advancing and accelerating investments in, by the end of the year it will make 10 million recommendations a day across the platform. And we believe within four years that will lead to a billion recommendations that will be made on our platform each and every day to highlight opportunities for advisors to engage with their clients, And the more that we deploy the client portal to highlight to consumers what benefit could be derived by engaging with their advisor more deeply.
spk01: Okay, that's great. Thank you. Sorry, I was on mute for a second. And then maybe just secondarily, maybe just give us a quick update on, I guess, the data analytics or YOTLI, whatever you want to call the segment these days. If you look at the last few quarters here, it's fairly flat. So maybe just an update on the three areas, the legacy bank business, the kind of asset management data business, the fintech business, and anything I may be missing here too. I think you mentioned that banks are doing better, so just flesh it out for us. Thanks.
spk04: Yeah, thanks, Alex. And again, thank you for the questions. Yodlee had a very good first quarter. You know, the DNA business performed really well. Subscription revenue was higher than expected. It's driven mostly by our financial institutions, you know, the big banks. Usership is up. That's a, you know, COVID activity, hitting the phone, finding out what your balances are. interacting with your money digitally far more actively during COVID, but we think that'll be sustained post-COVID. So usage is up. Financial institutions had a very good quarter, but so did our fintech business. So usage for main consumers up across financial institutions and fintechs. The business area that is Then the biggest challenge for the DNA business was our analytics offering, you know, which has had resilient pricing headwind, given competition in the space and our pricing per contract had come down. So we've been flat to negative on the analytics business. Again, the analytics business had a pretty good quarter. We saw revenue was solid, slightly ahead. Renewal rates were high. We think that there's some new market opportunities that we're discovering in the DNA analytics business, especially around management consulting. You know, the continued headwinds, it's not going to restore its, you know, the analytics business is not going to restore its high growth rate anytime soon, but we're beginning to make progress, and we think that we're turning the corner in that business.
spk01: Very good. Thanks again.
spk05: Yeah, thanks, Alex. Thank you. Our next question has come from the line of Surrender Assigned with Jeffrey. Please proceed with your questions.
spk07: Thank you.
spk05: Hey, Surrender.
spk02: Hi, guys. So, Bill, I guess my first question is just a little bit about the investments that you guys are making or at least kind of the implications of those investments. So maybe can you provide some update in terms of the receptivity you've gotten from clients and then maybe explore the idea that as you kind of talk about the future and functionality that's coming into, does it make sense for clients to kind of hold off in, you know, coming onto the platform or how are new clients dealing with the idea of making the decision of, you know, onboarding today versus maybe waiting to onboard with the newer enhancements.
spk04: Yeah, you know, I would say that universally the feedback that I have received from our clients has been very positive. And, you know, I think they're excited about the roadmap. They're excited about where we're headed and how the tool set that we have within the investment organization is being pulled together to be most impactful for our clients, whether they're the largest broker dealers that we serve, largest banks that we serve, all the way to the local RIA that's a couple of blocks from you right now. And so very positive. At the same time, Serena, we are also deploying teams for our clients that are addressing near-term issues or near-term ways to unlock more opportunity with our current technology. And, you know, that's been an effort from a relationship management standpoint, technology, data standpoint to help our clients kind of, you know, kind of grow and meet their goals, utilize more and more of the InvestNet solution set, and do that in the very near term, like this quarter. while we roll out the more modernized user interface that will reach their desktops in the quarters ahead. The next large piece of technology that we will be launching, of course, is the client portal. You know, on the investor day that we're going to host in June, I'm very much looking forward for you all to have a look at that technology and understand how powerful a piece of technology that we'll be bringing to our clients. And our clients are incredibly enthusiastic about that. The feedback has been tremendous. So it's something that we feel very positively about.
spk02: Got it. And then if we were to just kind of take a step back and take a look at maybe the demand that there was pre-COVID, in kind of the demand that you're seeing out there in the near term at this point, how would you describe that? Are we kind of fully back to where things are at this point? Just any color of context you can provide there in terms of like upcoming conversion activity or how we should think about the near term?
spk04: Yeah. Well, I would say that the activity on the platform in the first quarter was as significant as any quarter. I mean, you know, the new account flow, the net account flow, asset flow, so lots of activity that advisors are engaging clients. When you think about the dynamic of how the business was working, which is very advisor, face-to-face, belly-to-belly, to the remoteness of this COVID period, the fact that the account flow has been so strong is an absolute credit to the advisory industry and the way advisors have adapted. That has been very positive. We continue to onboard New firms, new logos, we continue to transition firms from legacy platforms, competitive platforms, onto the InvestNet platform. I do believe that as we roll out the new client engagement portal, the new logo activity is going to increase surrender. I know that because, you know, I look at the pipeline. I know that the firms that we're talking to specifically around the client engagement portal. And those are new logos and firms that have used competitive platforms in the past and will ultimately become InvestNet clients.
spk02: Helpful. And then one quick question. Now that we're kind of a quarter in, any update that you can provide on kind of the Equifax relationship and maybe where you are in terms of that relationship generating revenues?
spk04: Yeah. I would say that COVID caused a little bit of a delay, right? And I mentioned that, I don't know how many calls ago, probably three calls ago, we talked about a little bit of a hiatus last spring with Equifax, but in Q1 21, Equifax released our joint credit solution. It's called Cashflow Insights, and Equifax is building a pipeline They're selling the solution. They feel that the launch has been very effective. We will not top over our minimum with Equifax in 21, but we believe that in 22 and beyond, it will begin to contribute beyond the minimum that we have in the contract with them. So we're in the market. Products in the market, good initial response to the solution. Got to build from here to kind of punch through the revenue minimum that we have in the contract.
spk02: Okay. Thank you. That's it from me.
spk04: All right. Thank you very much, Eric.
spk05: Thank you. Our next questions come from the line of Peter Heckman with DA Davidson. Please proceed with your questions.
spk08: Hey, good afternoon, everyone. Hi. I just wanted to get a little more color. You touched on it, but just some of the reasons behind the really strong net flows, X conversions this quarter. It looked like it was the strongest in a couple of years, but we didn't necessarily see an accompanying uptick in advisor growth or necessarily accounts. Anything going on there or that you can attribute that to, or just some, maybe one group or one group of customers was able to move more assets over?
spk03: Yeah, so part of the account and advisor metrics, we had a reclassification that moved some from AUMA to subscriptions. So that's why I think primarily the reason that The account numbers aren't matching up with the flows. I mean, they were low-margin type stuff that weren't really generating a lot of new business anyway. So I'll let Bill talk about the reasons behind the flows.
spk04: Yeah, so the reclass kind of pushed down the actual, I think, net gain that we had in AOM&A. That's the headline. The AOM&A business had a very good quarter. And I think, you know, when we talk to our clients, Again, InvestNet transitioned through the COVID period and helped advisors transition through that period in a scaled, kind of very dependable, supported way. And so I'd say that the satisfaction index on InvestNet and what we're able to provide to clients is, you know, we proved up during the period. Advisors have been on the platform a longer period of time. They're used to the workflow. They're used to how to engage clients with it. The longer that they're on the platform, the more productive they are. This is something that I go back and I think about my good partner, Judd, and he talked all the time about the longer that advisors had that platform, the more productive they are. They're certainly more productive than the average advisor in the marketplace, and that's what we're seeing. We're seeing that, and the benefit... of the InvestNet platform, again, is that in a COVID period, a remote period, cloud-based, accessible from anywhere, teams are able to leverage it. And my sense is that advisors are really getting deeper traction on the fee-based solution side using our platform.
spk08: Got it. That's helpful. And then, you know, just eyeballing the subscriptions and licensing line, You know, we know what the trends are at Yodlee, but it appears that, you know, basically the wealth portion of that, you know, has been growing to be mid to high single digits. Do you see that accelerating at all given continued deployment of some of the add-ons to MoneyGuide and other new solutions?
spk04: You know, Pete, I do. You know, I think, you know, when I think about the money guide solution, I think about some of the new capabilities that we're rolling out. We think about some of the harvest capabilities that we'll be offering inside of the bank accounts. We've got lots of kind of capabilities now that are more license-based than AUM-based, but those license-based tools, what do they do? They drive, ultimately, drive drive advisors to utility of the AUM solutions, whether that's investments, insurance, credit, et cetera. So, no, I continue to be very bullish on the growth in the wealth space. I think what, you know, as we articulate this strategy around the digitized engagement platform, you know, you're going to see more and more uptick. As we Also, the other dynamic, which I will point to, which I think is important, is that I believe we'll see more headcount growth in the AUM&A category. As we use the data recommendation engine across the $4.8 trillion, some of those advisors and some of those accounts are sitting in subscription-based environments, reporting only, rep is PM, some of the Tamarac assets. Now we're going to pull them over into solutions tax overlay, impact, direct indexing that sit within the solutions team here at InvestNet. So my expectation is the advisors, accounts, and assets will grow and be a primary initial contributor to the incremental revenue growth that we'll be driving.
spk08: Okay. That's good to hear. Thanks, Bill.
spk05: Thank you, Pete. Hope you're well. Thank you. Our next questions come from the line of Michael Young with Truist Securities. Please proceed with your questions.
spk07: Hey, thank you for taking the question.
spk04: Absolutely, Michael.
spk07: I wanted to just kind of start on sort of the investment, particularly on the human capital side. Is that really going to be focused on, you know, hiring engineering and data analytics talent to kind of build and roll out the kind of ecosystem expansion and integration and then eventually move over into marketing and sales over time? or are you going to kind of hire across the board all at the same time so we'll see kind of the expense ramp more cohesively at one time, followed by kind of a glide path lower afterwards?
spk04: Yeah, you know, it's headcount first, you know, and the hiring is taking place in the product area, the data, that data team that I keep on spotlighting around our data recommendation team and our engineering team. But at the same time, you know, parallel to that is we've got a marketing and sales strategy, an engagement strategy. And if I could just take one second to kind of walk through the kind of the platform mentality that we're taking to the investments, right? So we're hiring. You'll see an uptick in those expenses in the second quarter and beyond. Really pleased with the pipeline and the candidates that we're getting a look at and bringing onto the firm. So, again, you'll begin to see some of that build in the second quarter as I spotlighted engineering, data, product, and marketing and sales. But at the same time, what I'd keep an eye out for is that from a marketing standpoint, we're going to begin to introduce to the marketplace not only the overall drive toward the financial wellness ecosystem that enables an advisor to create an intelligent financial life for the consumer, but in the real product areas of tax overlay, of direct index, of impact investing, of credit and insurance to create greater awareness. And at the same time as we're creating greater awareness, We've built out a solution specialist team that is receiving those data recommendations through our recommendation engine, tapping that advisor on the shoulder, saying here's the solutions that would best benefit these particular clients. We created the digital marketing tools for that advisor to reach out to that client and the account opening tools to sweep it back into the platform. We're opening more accounts. The other area of investment I would say is around the ecosystem. and the ecosystem being the API network that will enable and open up the embedded finance and fintech channel for us. Really good progress there. MoneyGuide engine we announced in the first quarter. Important to take note of because now our APIs, our financial planning APIs, are open to the industry, right? And you can use a five-minute block if you're a bank or a fintech and utilize that piece of technology, or our state legacy API. planning tool to build into your user experience if you're a bank or a higher-end RIA. In addition to that, the APIs for the InvestNet universe are being leveraged internally today, so that storefront exists for our internal developers. More and more of our code is being put into that API set. We're able to accelerate that. We've been able to accelerate that because of, you know, the move to the cloud. But now we'll make a really hard push and invest dollars to build an app store, if you will, for the totality of the InvestNet universe. Yodlee, MoneyGuide, InvestNet, a store that has an API that addresses the full spectrum of capabilities for the FinTech embedded finance marketplace and for developers to use to build back into our distributions.
spk07: That's helpful. And, you know, I guess just as a follow-up, you know, as you kind of complete this integration, will there be areas of expense savings sort of on the back end with either, you know, legacy technology that's no longer needed or old platforms, et cetera, that can be, you know, turned off or removed? Any color there would be helpful.
spk04: Absolutely. As we get through The spending, you know, the 21 into the 22 cycle, we believe as we get towards the end of 22, we're going to see cost savings, both from an efficiency of data reconciliation, account opening processes, other legacy technologies that were part of business units but are replicated by the core technologies that InvestNet has created. So as we get through the spend, we believe that we'll be able to accelerate our EBITDA growth, but we've got to make the investments to get to that place where we're leading class in the industry, we're powerful from a data recommendation and insight standpoint, we are open from an API standpoint. All those three categories will be industry-leading and transforming investments. And at that point in time, we also recognize that there will be significant cost savings that we'll be able to – I'm sorry, significant cost leverage that we will create in our business.
spk07: Okay. Thanks. I appreciate the call.
spk05: Thank you. Thank you. Our next question has come from the line of Ryan Bailey with Goldman Sachs. Please proceed with your questions.
spk10: I hope you're doing well. Good, thanks. So I was hoping you could come back to the comments on some of the asset-based fees and the shift of some of the assets that are in subscription to AUM and AUA. Do you feel that the fee rate is turning there now because of the asset-based solutions and the exchanges? So that was my first question, and sneaking in the second one. And how will you be accounting for you know, subscription-based accounts, but that are also using some of your asset-based solutions and exchanges.
spk03: So I'll answer the second one first. I lost a word there when you said something about the fee rate. Are we toning?
spk10: It's inflecting. If it was inflecting. Oh, turning.
spk04: Turning, yeah, thank you. There was like a voice smudge, so I thought it said toning too, and I pictured our fee rate working out.
spk03: So, yeah, when an account moves to an AUMA, it moves out of the subscription bucket into the AUMA bucket. So there's no double counting of accounts for that sort of thing.
spk04: Yep.
spk03: And so the fee rate is going to depend on the asset mix.
spk04: Yeah, it just depends on the asset mix. But there will be incremental fee benefit laid onto lower basis point accounts. if that makes sense to you. So if a rep is an advisor-managed portfolio in which we get paid either very low basis points and or subscription rates, opts into the tax overlay, well, that's a 12 to 15 basis point capability, right? So that'll be, you know, 12 to 15 basis points on those assets because we're going to do that on an on – we're providing the tax overlay on an ongoing basis. So we believe that the incremental fee rate, as we're successful in identifying the opportunities in our captive market today and begin to penetrate that, we believe that will have an uptick in our overall fee rate. The range of fees that are in the solution set or the use case set, that we're identifying kind of out of the gate, range from 10 basis points to 40 basis points on the solutions that are going to fall within the window of our data analysis and kind of identifying accounts for additional services.
spk10: Got it. Thank you.
spk04: Yep. Thank you.
spk05: Thank you. Our next questions come from the line of Chris Donette of Piper Salmon. Please proceed with your questions.
spk06: How are you, Chris? Good afternoon. Hey, guys. Thanks for taking my question. I wanted to ask, Bill, just to follow up on the last one. So you're talking about the 10 to 40 basis points of uplift from the data analysis. As I look at slide eight, and maybe I'm mixing some apples and oranges here, and maybe I should be talking about the fee rate toning here, but looking at that $4.8 trillion captive addressable market, and then the $500 million incremental revenue opportunity, I'm calculating that's only one basis point on there.
spk04: I'm just trying to square, like, I mean, if you have – Yeah, and I'm happy to – so we have taken a – so this is the time period of our investment, and we've spoken to investors about how we believe we can drive incremental revenue and revenue growth. So over this window of time, we believe there's a penetration rate that we're making an assumption of that's pretty conservative. And as we blend that out, we believe that it's a $500 million incremental annual recurring revenue, incremental revenue opportunity that we see that we think is very achievable from a penetration rate. So really you're just looking at a penetration rate that is reasonably conservative. And then we blended out all the products and said, hey, we think we can get here. And with our data recommendation engine and recommendations going from 10 million a day this year, later this year, to over a billion during this period of time, you know, I think we feel very good about the objective that we've kind of presented.
spk06: Okay. And then for your go-to-market strategy, I'm just curious, as I look at your 4.8 trillion, yeah, the majority that's in licensing, is there a different strategy as you go after assets, whether they're under administration, under management, or licensing, or is it the similar sort of tap-on-the-shoulder setup that you're talking about?
spk04: Some are literally, yeah. It's a great nuance that you're picking up on. A lot of our advisors already have access to all our fiduciary suite, all our solution suite. And, you know, as I mentioned in the script, I think my exact sentence said something like, we are working to make all solutions and all exchanges available to all advisors. So there's some contracting, there's some addendum work that we will be working with our clients to kind of sign. As we identify for them the captive addressable market sitting in their books of business that will incent them to say this is a very good idea, I want these services, help me go get those assets, because they're sitting in their book of business today, Chris.
spk06: Okay. That's it for me. Thanks, Bill.
spk05: All right, Chris. Thank you. As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. Our next questions come from the line of Alex Graham with UBS. Please proceed with your question.
spk01: Oh, hey. Thanks again. Not to drag out the call, but had a quick follow-up. You made a comment in your prepared remark about second half 22 revenue contribution from some of your investments. I'm not sure if I heard this right, but was that pertaining to a specific investment or is this for everything that you're doing? Because If some of the investment goes into marketing, I would hope that there's a payback a little bit quicker. So just maybe clarify what you were talking about with second half 22 and why the timeline.
spk03: So again, it's a ramp. It's not like a switch we turn on and turn off. We've given an example of something that's in the market that will get distributed more broadly, but that won't happen immediately across the universe of existing clients that we have. So we're basically giving ourselves time to ramp some of these new initiatives, to more broadly distribute them, and we expect to really be seeing some more meaningful revenue toward the second half and into 2023. Yeah.
spk04: And, Alex, just to add, this is Bill. You know, we anticipate that the activity on the platform will continue to be, you know, the activity that we've been experiencing in the last quarters will continue and will continue to kind of drive our double-digit growth rate, where I believe we're confident that we can, you know, the incremental opportunity that we're going to be able to penetrate at an accelerated, significant enough rate to have an impact on the growth rate will begin to really evidence itself in the second half of next year. That said, we're going to provide KPIs and other data points to help investors understand the progress we're making and continue to create some transparency around, again, the usage of these product solutions, the number of data recommendations, the click-through rate on those, and then ultimately, you know, the revenue that that activity is driving.
spk01: Okay. Now, thanks for clarifying.
spk04: Yep. Thanks, Alex.
spk05: Thank you. There are no further questions at this time. I would like to turn the call back over to Bill Cragen for any closing remarks.
spk04: Yeah, I just want to thank everybody for joining. I really appreciate the questions very much. I do want to just make a note to thank the InvestNet team for the extraordinary work that they've been doing, just extraordinary. And I'm looking forward to connecting with everybody at the Investor Day meeting in June. So we're really looking forward to that. Thank you again for your support, and have a very good evening. Thank you.
spk05: Thank you for your participation. This does conclude today's teleconference. You may disconnect your lines at this time. Have a great evening.
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