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spk00: Thank you for standing by. This is the conference operator. Welcome to the InvestNet second quarter 2021 earnings conference call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and zero. I would now like to turn the conference over to Brian Shipman, Head of Investor Relations. Please go ahead.
spk03: Thank you, and good afternoon, everyone. Thank you for joining us on today's second quarter 2021 earnings call. Before we begin, I would like to point out that our earnings press release supplemental presentation and associated form 8K can be found under the Investor Relations section of our website at investnet.com. This call is being webcast live, and a replay will be available for one month on our website. During the call, we will be discussing certain forward-looking information, which is not a guarantee of future performance, nor are we obligated to update our commentary to reflect subsequent material developments. Before we discuss our results, I encourage you to review the cautionary statement on slides two and three for our customary disclosures. Further information can be found in our regular SEC filings. In addition, please refer to the appendix in our slide presentation for reconciliation of our non-GAAP measures to the most directly comparable GAAP measures, which is also posted to the InvestNet Investor Relations website. Joining me on today's call are Bill Krager, Investnet's Chief Executive Officer, and Pete DiRigo, the company's Chief Financial Officer. Bill and Pete will provide a company update as well as an overview of the company's second quarter 2021 results. After our prepared remarks, we will open the call to questions. During the Q&A, please limit yourself to one question plus one follow-up. You may get back into the queue if you have additional questions. With that, I'll now turn the call over to Bill.
spk02: Thanks so much, Brian. It is good to speak with everyone today, and I'm excited to report our second quarter results. I will start by providing some highlights from the quarter. Our strong performance is a reflection of our market leadership where we serve more clients than ever before, and those clients are engaging with us in more ways given the breadth and essential relevance of our offering. I will also review our strategy and progress towards creating the most impactful and comprehensive financial wellness ecosystem of data, technology, and solutions that powers our industry. InvestNet achieves strong adjusted revenue growth of 23% in the quarter and 17% year to date. Our new guidance reflects the stronger than expected first half of the year as well as an improved outlook for the second half of 2021. This growth was enabled by our market-leading position and the scale we have achieved. And this is a market position we continue to expand. I believe this is important to note. Our position and ability to create scale creates unique leverage for InvestNet as we drive our strategic plan forward. The number of advisors on the InvestNet platform is now almost 108,000, with 14 million accounts that make up $5.2 trillion in assets. Our data aggregation business serves over 500 million aggregated accounts each day. Our money guide financial planning business continues to be the market leader in the industry, while InvestNet TAMP services also stands atop the podium as the market leader. We have the largest network of services, solutions, and third-party providers, and we continue to grow these options for our clients. New accounts are being opened at a faster pace, and we are averaging well more than 10,000 new accounts every week. We added several new customers during the second quarter, including notable firms such as Securian. as we also continue to add services to the firms we serve today. Our exchanges are activating more and more advisors. Financial planning continues to add exciting new features we've rolled out to our existing clients. And in our RIA business, we're seeing momentum adding managed accounts to a growing number of firms. While our footprint continues to grow, So do meaningful metrics such as assets per advisor, accounts per advisor, and adjusted revenue per advisor. We are operating at significant scale as well. During the second quarter, we serviced almost 50 million trades and completed 1.8 million service requests. We're also generating more than 8 million data-driven recommendations a day for our clients to better connect and better serve all of their clients. As we mentioned on Investor Day, we are on our way to 10 million recommendations a day by year end and over a billion a day by 2025. These proof points are unique to InvestNet's market position and enables us to advance our vision and pursue the growth strategy we have discussed on earlier calls. I believe these are very clear leading indicators, and as we continue to execute, the future for InvestNet is brighter than it's ever been. Over the past several months, we have laid out a straightforward and executable strategy, and we are driving progress towards enabling the ecosystem that powers our industry. No one has the strength of platform, user base, and leadership position that we have. And it is a significant differentiator, positioning Investnet to continue its leading position and drive the company towards achieving our mission and our stated financial goals. This scale, combined with our cloud-based infrastructure and unparalleled data and solution set, opens up the growing opportunity for us. We are making important progress in bringing the pieces together in a frictionless, intelligent, and connected ecosystem so that the advisor and the consumer sees a much clearer and much more powerful view of their money in one place, while at the same time, our customers have easier access to the entirety of our offering to help them serve their clients more completely. Our platform and ecosystem is the industry standard for how advisors engage digitally with their clients today, and it will be the standard for how they serve their clients into the future. Digital transformation is the most powerful of several macro trends we benefit from. And by capturing the lead here, we create a virtuous environment that opens more and more opportunity for our company. In addition to the digital transformation that is occurring, we continue to benefit from and also power several important industry trends. These include the growth of fee-based advice, the even faster growth of managed accounts, and the hypergrowth of personalization services like direct indexing, tax overlay, and impact investing. As you overlay these trends across the current business that we serve today, which is $5.2 trillion in assets. We believe we can increase our revenue by roughly 10 basis points, on average, on 10 to 15 percent of this asset base. This creates a significant and growing revenue opportunity, which, given our advanced market engagement strategy, we are increasingly identifying, engaging, and executing on. our opportunity will continue to grow given these macro trends, given our strong market position, and given the significant capabilities that we have. With that in mind, our leadership team has a laser-sharp focus on three key drivers of revenue growth. We will capture more of the existing addressable market by supercharging our platform to leverage our comprehensive data and solution sets. This opportunity is large and it is sitting directly in front of us. Next, we are leading and modernizing the digital engagement marketplace by extending our cloud-based migration, which allows us to connect the best of InvestNet for a truly seamless customer experience. And lastly, we are opening the platform for expansion. Our developer portal enables over 625 third-party fintechs to leverage APIs, embedding our capabilities and data into their environments. This usage has grown by 1,700 percent since the beginning of January 2020. At the same time, we are opening InvestNet's ecosystem for more third-party providers, all of which will drive users and engagement, ultimately accelerating our revenue growth and our opportunity. I want to double-click on capturing more of the existing addressable market and why we are very confident given the early progress that we're beginning to see. You see, we have a differentiated engagement strategy that is powered by the visibility and understanding we have given our data model. This prioritizes the use cases that target large, identifiable, addressable pools of opportunity for investment. which also deepen the relationships between advisors and their clients. We have the broadest number of solutions available to our advisors. Our data-driven recommendations drive increased adoption, and increased adoption and increased solutions provide more data to improve the recommendations that we make. We are accelerating growth, utilizing the data in the ecosystem and removing friction from the tasks required for advisors to use and access our solutions. And we are adding to our solutions. During the second quarter, we introduced several new products that continue to build out our offering to the advisor and ultimately to the individual consumer. We've been piloting the new client portal with several large customers and the early feedback has been incredibly positive. We also added services such as residential real estate to the credit exchange. In our recently launched Alternatives Exchange, which we launched in July, a collaboration between InvestNet, UBS, and iCapital deliver a curated set of alternative investments to InvestNet clients via an end-to-end digital platform. 2021 represents InvestNet charting the course for advancing a tremendous opportunity for our industry to better serve its consumers. We are a catalyst for this future, and this is a moment for us to apply our efforts on taking advantage of the position that we have and the strategy that we have created and the opportunity for sustained and accelerated growth. The InvestNet organization is locked in on executing on this. Let me turn the call over to Pete, who will take you through our financial results, and then I'll be back with some closing comments before taking your questions.
spk04: Thank you, Bill. Today I'm going to review our second quarter results and then provide an update on our revised guidance for the third quarter and the full year. Our second quarter results continue to demonstrate the strengths in our business model, positive dynamics from the first half of the year we expect to carry into the third and fourth quarter, which are reflected in our updated full-year outlook. Adjusted revenues for the second quarter grew 23 percent to $289 million compared to the second quarter of last year. Adjusted EBITDA grew 27 percent to $71 million compared to the second quarter of last year. Adjusted earnings per share was 67 cents. Turning to the balance sheet, we ended June with approximately $370 million in cash and debt of $860 million. The debt consists of our outstanding convertible notes maturing in 2023 and 2025. Our $500 million revolving credit facility was undrawn as of June 30th, making our net leverage ratio at the end of June 1.8 times EBITDA. Turning to our investment initiatives, I want to reiterate our expectations. We continue to expect the investments to account for roughly $30 million of operating expense during the year. We are making good progress on the hiring front, the impact of which is reflected in our updated guidance. We expect the investments to ramp up throughout 2021 with most of the impact in the second half of the year and annualizing to a run rate of approximately $40 to $45 million in 2022, growing at the same rate of operating expenses thereafter. Additionally, we continue to expect to begin to generate faster revenue growth in 2022 as we create a better, more streamlined ecosystem, which elevates our value proposition to existing clients and expands our total addressable market. Turning to our third quarter and full year outlook, you can find our complete guidance in the earnings release and in the earnings supplement. But to highlight a few items for the third quarter, we expect adjusted revenues to be between $298 and $301 million, up 18% to 19% compared to the third quarter of 2020, based on June 30th asset levels. Adjusted EBITDA to be between $61 and $63 million as we further ramp up the investments and EPS to be 58 cents per share. For the full year, we are again raising our outlook to reflect the strength of the first half of the year. For the full year, we expect adjusted revenues to be between $1,169,000,000 and $1,174,000,000. up 17 to 17.5 percent compared to 2020, adjusted EBITDA to be between $253 and $257 million, representing growth of 4 to 6 percent for the full year, and EPS to be between $2.30 and $2.35, which is 31 cents higher than the original guidance we gave back in February. Adding some detail about our revenue outlook for the second half of the year, to highlight some of the drivers of our revenue growth trends. First, our wealth business has performed increasingly well year to date. During the second quarter, we completed the merger of two like clients, moving significant assets from an asset-based relationship to a subscription-based pricing model. While this doesn't fit the way we have reported reclassifications in the past, it is in effect a reclassification. If we adjusted for this, the second quarter was ahead of even the first quarter in terms of net new flows from existing business. Further, our significant asset base benefited from favorable capital markets, adding to our forecast of revenue growth. Second, our data and analytics segment has grown subscription revenue around 4 percent in the first half of the year compared to the first half of last year. We expect this business to see improving revenue growth in the second half of the year. As we continue to execute on our strategy in the coming years and begin to benefit from the investments we're making now, we will capture more of the opportunity we've identified, positioning us to attain our longer-term targets of mid-teens growth and revenue and adjusted EBITDA margin of 25% by 2025. Thank you again for your support of InvestNet, and now I'll turn it back to Bill for his closing remarks.
spk02: Thanks so much, Pete. We are pleased with the progress we're making and are focused on the execution of our strategy, the opportunity to be the leader of the ecosystem that powers the industry, the ecosystem that connects data, technology, and solutions to enable the intelligent financial life and is differentiated from every other provider as a fully connected, open architecture, hyper-personalized wealth management platform. As the industry leader, we will continue to enable the digital transformation that our clients need from us. Our roadmap is very clear. We are capturing more of the addressable market opportunity with our data and our solutions. We are modernizing the digital engagement marketplace to reduce friction and land more clients. And we're opening up our platform to accelerate growth. We will continue to execute on that roadmap, and it will continue to create greater value for each and every one of our stakeholders. Thank you for your support of InvestNet. We'll now open it up to your questions.
spk00: Thank you. We will now begin the question and answer session. To join the question queue, you may press star, then one on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star, then two. We will pause for a moment as callers join the queue. The first question comes from Devin Ryan with JMP Securities. Please go ahead. Hey, Devin, how are you?
spk06: Hey, good. Hi, Bill. Hi, Pete. I guess first question is something you guys spoke about quite a bit on the Investor Day, and then, Bill, you referenced it again today. But I'd love to just dig in a little bit more. As we think about the firm moving from 10 million daily recommendations today up to over a billion by 2025, obviously, that's kind of tremendous growth and penetration and you know, essentially you're adding a lot more value in that you're removing friction, you're optimizing for the end customer, obviously in that. So I just would love to just talk a little bit more about how you can better monetize by doing that. And if you can just help us think a little bit more about like what that looks like and the ability to monetize that material step up and call it value add that will occur over the next few years and be able to achieve that.
spk02: Yep, and Devin, great question. Thank you very much. There are several ways that we're looking to monetize our overall data strategy. And then the more data that the firm provides to us or our clients provide to us, the more intelligent our recommendations can be back to that firm. So in our data strategy, the underpinning data strategy is how do we help firms manage their data, reconcile their data, create security, and protect their data on an ongoing basis, and then a feature level on top of that is the data intelligence. We call it investment data intelligence. Investment data intelligence will power these recommendations more and more to help the advisor understand the next appropriate action with each of their clients, where the highest areas of opportunity are for them, the highest areas also of risk across their current business. It will also help promote to that advisor, service tasks, other compliance issues, and then back towards our asset managers and third-party providers on our platform. We'll be providing recommendations back to them, Devin, also on an EDI or license basis to help asset managers, third-party providers working in the investment environment become far more informed about how best to engage opportunities across our platform.
spk06: Okay, really appreciate that, Bill. Helpful. And then just to follow up, I'd love to just maybe touch a little bit more about or on the progress in tax overlay, kind of if you can give a little more detail about the roadmap just even over the next couple quarters here, and just also how kind of the macro environment or even – what's being discussed in D.C. around potential changes to taxes could either help accelerate what you're doing or is affecting, if at all.
spk02: Great, Devin. I'm going to add quickly to your first question in that the client feedback we get around the use of the data and the analytics that we're providing today has been phenomenal. We're cutting down lots of time for administration and helping advisors really zero in on the opportunity. So the early days, as we've been delivering this to the market, high value is being recognized by our clients. So I just wanted to add that. Similarly, with tax overlay, there has been more and more interest, of course, as the market has been very friendly for return over this period of time, but also has created a lot of embedded gains. And then with the The idea that there may be some new tax legislation that would impact capital gains, clearly, advisors, this would be number one on their interest list when we have discussions from a fiduciary standpoint with advisors. You will see over the course of the next quarter, investment really raising its voice when it comes to tax overlay. The capabilities that we can offer, the benefits that are derived by the end client will push hard from a marketing communication standpoint and also an advisory engagement standpoint in the field on tax overlay. Again, the item that is probably number one from a fiduciary standpoint on advisors' minds at the moment. From a development standpoint, We continue to expand the marketplace that we can treat from a tax overlay standpoint. Today it's, you know, where there are individually held securities in that portfolio, but we're growing that and ultimately we'll also include our mutual fund strategist and ETF strategist portfolios which is a very substantial asset base for us. And then delivering in the next release, our next technology release, will be fully integrated tax after-tax reporting. So that completes the life cycle of the solution from the proposal as to what it will do for the client to the execution of that and then the benefit that's being derived by this service by the end client. We have seen sustained increased usage by more advisors who are who are opening more accounts to the tax overlay solution, and that is driving more and more assets into that program. So it is something that, again, early days of our very focused campaign on tax overlay, but the data that we're seeing in these early days is very encouraging.
spk06: Great. I'll leave it there, but it sounds really interesting. So, appreciate it, guys. I'll hop back in the queue.
spk00: The next question comes from Michael Young with Truist Securities. Please go ahead.
spk07: Hey, thank you for taking the question. Bill, I wanted to start off maybe with more of a qualitative question just coming off of the advisor summit that you all hosted. in July, you know, just any sort of takeaways from the conversations with clients early on and, you know, outlook for adoption and anything there would be helpful.
spk02: Absolutely, Michael. Hope you're doing well. So attendance for the advisor summit was up substantially year over year, higher than our in-person conferences and then higher off the virtual benchmark from 2020, so very pleased. I think it was over 33% growth in the attendees at the conference. Big audience, engaged audience. The roadmap that we are pursuing here, the conversations I have had and the feedback I've gotten across the board is in the center of the bull's eye. So advisory firms are headed in the direction of this integrated advice model and the digital engagement to do more, to serve their clients more fully from a digital standpoint. We're bringing those pieces together. So we were very encouraged by the feedback that we received from the conference. I think that the idea that InvestNet is a financial wellness ecosystem that enables an intelligent financial life is being echoed back to us. I think we're being successful in not only kind of messaging, but in the actions and the capabilities that we're introducing and showing to our clients, they're getting it. It's becoming very evident the direction that we're headed and the progress that we're making. I'd note just because you're kind of on the product side, our client portal is in beta. The feedback at the conference was exceptional. Now the client portal is in beta, and I would say that there is pretty remarkable, consistently very positive, when can I get it? How can I fully roll this out? And what's happening is with the client portal, we're finding that it attracts data, so data that may not be resident in the investment environment across the firm to really make it a more intelligent and integrated environment. So that has been very positive, and we think that will lead again to what I said to Devin, more and more opportunity for our investment data intelligence group. Again, and then the early feedback that we've gotten on the designs from our trading platform have also been very, very positive, both at the conference and then in follow-up meetings that we've had with clients.
spk07: Okay, that's really helpful. And I may have missed the exact specifics on the, I think, the 10 bits of additional revenue you think you can drive on I think it was 15% of the $5 trillion in assets. But I was curious, A, if those numbers are right, and then, B, you know, if they are, you know, is that informed by sort of the beta program and pilot that you're running so far, or are there other assumptions that sort of underlie that data?
spk04: So, yeah, those are the numbers we're talking about. This is Pete. Thanks, Michael. Those are the numbers we're talking about looking at the – sort of captive addressable market and how much of that we could capture, and then what the incremental pricing would be on some of those assets if they move into these newer initiatives like tax overlay. So, on average, that's where we come up with the 10 basis points. I'll let Bill talk about the pricing.
spk02: Bill Walsh- Yep. So, yeah, Michael, just to give you the numbers again, 10 basis points on $5.2 trillion in assets that we serve today. We think we can penetrate that by 10% to 15% of that asset base across a series of use cases. beginning with tax overlay, we spoke about that, but that will include our direct index product, that will include our impact program, moving brokerage accounts to managed accounts, other types of opportunities like that. Each of those have a substantial addressable market in that $5.2 trillion and all roughly, as we blended it out across those programs, and looked at the size of those programs, it blends back to the 10 basis points that I cited on the call.
spk07: Okay, great. Thank you. I'll step back.
spk02: All right. Thanks, Michael.
spk00: The next question comes from Alex Cram with UBS. Please go ahead.
spk01: Yeah, hey, good evening. Just going back to the quarter and the guidance here for a second, clearly you beat your own guidance on the EBITDA line and the cost side in particular. And when I look at the outlook, it looks better on the cost as well. So just wondering what happened here relative to a few weeks ago when you gave us the last update. It seems like maybe spending isn't coming in as fast, but you just said you reiterated it. your spending outlook for the year. So just curious what happened here. And then as your guidance has moved up, what does this mean, Pete, for next year? As you had talked about, maybe obviously your margins for this year are expected to come in higher. What does this mean for next year as that flows through and the delta between margin expansion or no margin expansion? Any changes there for 2022 that you can talk about already?
spk04: Yeah, so two parts there. Thanks, Alex. The first piece of that, we had, you know, we're making progress on the initiatives. We are reiterating that because we have had a significant amount of hiring that has come in and we expect that to continue throughout the rest of the year. We did beat on expenses, again, less so on what we would define as initiatives and more so on sort of an existing operating base. And there were a number of things in there. I would characterize it mostly as where we had thought there were some costs coming back from COVID, maybe not coming back quite as quickly in both the personnel and in the sort of travel lines. there was better than expected operating expense performance in kind of that core business. So, when you look at it in those two elements, there is outperformance on the one hand and continuation of the initiatives on the other. As we look to 22, I would say it's a little early. I don't want to start giving guidance on 2022. But I know we talked about having flat margins. So that was when margins were expected to be a little bit lower than they're turning out to be this year. So I'm not exactly sure where to throw it out for 2022 quite yet. But I would estimate that it's likely more in where we were before. with the estimated guidance at about 20 and a half or so, 20 to 21 in that range. When we made that statement, just because as we make these investments, it is going to annualize on and talked about that in the, in the prepared remarks.
spk01: Okay. No, thanks for that color. And then maybe just coming back to the question before on, on the kind of TAM and the 10 basis points is actually something I wanted to ask at the investor day too, but didn't get a chance, but like, as you think about this in particular from a multi-year perspective, how comfortable are you with that 10 basis point outlook? And I'm asking because obviously you've seen, you see fee erosion everywhere in the asset management space and you know, you're not the only one who talks about tax overlay or ETF portfolios and, and, and other things that you obviously are excited about and probably have a great addressable market. And the question is just as others obviously are not standing still, How much do you really think those 10 basis points is something you can obtain in 2025? So any color would be great.
spk02: Yep. I think in the overall outlook, Alex, it's Bill. Good to speak with you. In the overall outlook, we've incorporated a view that there will be, you know, more a little more competition as the space matures and really InvestNet validates the space. I think you'll see more people developing services around a lot of these things. Clearly, impact investing, direct indexing are already pretty, you know, pretty interesting spaces for asset management. The difference that we have, and I wanted to make this very clear earlier, is that we have the scale, we have $5.2 trillion, and we have the insights for identifiable opportunities given the characteristics of accounts so that we can engage that account in a much more effective way than another party just because we have the insights that drive a beneficial outcome to that account through that advisor. And so, we have the tools that will really help us, you know, penetrate the asset base. And again, given the quality of our services, given the range of basis points that we're talking about, we believe that net-net, we will drive consistent, you know, we will drive the revenue expectations that we've stated, which on that asset base, the penetration of 10 to 15 percent is roughly going to be 10 basis points.
spk01: No, thanks again. That's helpful.
spk00: The next question comes from Peter Heckman with D.A. Davidson. Please go ahead.
spk08: Good afternoon, everyone. Hey. Good afternoon. Hey, could you talk a little bit about your vision for the iCapital partnership and how I think you may have mentioned that there was an investment made in that company, but are you seeing demand, increased demand for alternative investments, both private equity, fixed income, as well as alternative fixed income assets from advisors?
spk02: Thank you, Peter. So the partnership on the Alternatives Exchange is with UBS, which is helping to curate and provide access to the alternative investments, hedge funds, private equity, other vehicles. And then the supporting platform for the, you know, the administration and execution of those is with iCapital, two fantastic partners. We think that UBS for the high net worth category does an exceptional job in identifying managers that will add value over time. and their access is pretty significant. And iCapital is a leader, clearly, in the platform space when it comes to alternative investments. We brought that together inside our environment, introducing it primarily to our RAA clients out of the gate. We believe that the allocation to that asset class will grow over time. We don't believe that it will be kind of a rapid shift towards alts. But more and more, people are looking for, you know, greater return in the portfolios, and people are becoming more and more aware and interested down, you know, down the net worth chain to they're just more aware of private equity and alternative investment. So we think there's a significant market here. We think it'll take some time to build. but ultimately is a great component to the integrated advice model or platform that we've constructed. You know, the long-only options on the InvestNet platform are exchanges, insurance, credit, trust, healthcare, and now we're adding alternative investments to that as well, Peter.
spk08: Got it. And any investment from InvestNet is fairly material?
spk02: No, no investment. It was all in partnership with UBS and with iCapital. Again, tremendous blue-chip partners.
spk08: Okay. And then just one follow-up. How are you thinking about when you're targeting this upsell and providing additional solutions? I know there's a lot of internal development going on, but how are you thinking about M&A in that context? Are there some capabilities or some niche markets that you'd like to go after through acquisition here?
spk02: Yeah, I mean, when you step back and you look at the breadth of what InvestNet is doing today, we have the broadest platform in the space. Now we're demonstrating ways to partner, and we've done that through investments so that we've invested to launch the insurance exchange. We've invested to create the credit exchange. We're partnering to build the alternatives exchange. We will continue to kind of deploy a three-pronged strategy when it comes to the further inorganic growth or partnership growth of the platform. We'll acquire. We will invest to partner in things like the insurance exchange, et cetera. And then we will do commercial partnerships that get us to market sooner with, again, blue chip partners. There is no glaring hole in our offering today, but there is the ambition to be a complete platform that integrates the financial lives of individuals and families, and that's really what we're focused on.
spk08: Got it. Okay. Thanks so much. I'll get back to you.
spk02: Great. Thanks so much, Peter.
spk00: The next question comes from Ryan Bailey with Goldman Sachs. Please go ahead. Hey, Ryan.
spk10: Hi, good evening, Bill, Pete, and Brian. So coming back once again to the asset-based solutions question, say we were to roll forward a year from now and you were reporting 2Q22 results, what level of penetration would you view as acceptable on the way to 10% to 15%? Or if you want to kind of view it a different way, like what would you view as disappointing?
spk02: Yeah, so, Ryan, I think, you know, we continue to have really – our early momentum here is pretty significant. So, year over year, if I look back a year, last year, we grew, say, in impact, advisors over 100 percent. And what you do in these programs is you look at the ultimate run rate revenue of an advisor who's been utilizing the product for a period of time. And if you add the advisor, then you're able to kind of run rate how they're going to grow from an account standpoint and revenue they would generate on a go-forward basis. So I think if we continue to add the numbers of advisors that are being added to, say, the tax overlay program that are utilizing our direct index platform, we're utilizing our impact platform, et cetera, and again, the year-over-year advisor use of those are all very, very significant. 20 over 21, we want to continue that momentum. And as you continue that momentum, then they're going to open more and more accounts in that service, and we can generate more and more run rate revenue from them. So what we're focused on is activating advisors, getting those advisors to open those accounts, supporting that process through our go-to-market and engagement model, and then getting that advisor to go deeper into their book of business, and that's been our experience. So I think when I look at the numbers headed towards next year, I want to see continued momentum in activated advisors who have opened their first account, because ultimately that will drive success for us.
spk10: Got it. Okay. And maybe just another question on the guide for Pete. I just want to make sure I'm thinking about it, right? And based on sort of what you've given us for 3Q and the full year and what sort of happened so far, I think the implication is that for 4Q at the high end, you can get 23% EBITDA margin. I just want to make sure I'm not missing anything or thinking about that wrong.
spk04: For 3Q,
spk10: So just if I took the high end of the guide for 3Q for revenues and EBITDA, and I backed that out of the folio guide, and I backed out the first half, which we know, I think the implication is for a pretty high margin for 4Q, unless I'm running something wrong. And I'm happy to sort of connect offline if I'm missing something.
spk04: Yeah, I don't know. The way we have the initiatives ramping up, I think the EBITDA margin is going to be coming down over the back half of the year.
spk10: Okay. I must be calculating something.
spk04: Yeah, maybe we should take it offline. We'll follow up with Brian.
spk09: Yeah, happy to chat offline, Ryan. Cool. Thank you.
spk00: The next question comes from Chris Stoney with Piper Sandler. Please go ahead.
spk09: Hey, good afternoon, everyone. I had two sort of pedestrian questions, just one on the fee rate in the second quarter coming in at 9.8 basis points, a little better than what your guidance implied. Anything notable there, or is that just sort of typical bouncing around, like either asset mix or any really early sign of the 10 basis points, which I doubt, but just wanted to check if anything's going on there.
spk04: Well, it's... Well, a couple things in there, so I would say no there's there's there's nothing that dramatically happened other than the mix that you talked about we're moving a little bit higher on a um. I would also say you know it's kind of hard to say when we flip a switch when we start to see the benefits of some of the strategies that we're implementing here and so. The fact that we are seeing higher AUM is a result of the initiatives that we're starting to see the benefit. So, you know, that will continue, but in a much more dramatic way, I think, over the five-year period we're talking about.
spk09: Okay. And then just on severance, I think you've addressed this before, but you've had sort of five or three-quarters of I'll call it elevated severance, and I know you're hiring on one side. Anyways, is anything notable going on there, or is it just sort of a, you know, some changes of personnel on the severance side?
spk02: Yeah, thanks, Chris. Hope you're doing well. This is Bill. So, you know, we did a project as we started to move the organization into an integrated company, You know, we were business unit aligned, and now we're really focused on the integration of the organization. As part of that process, we did an early retirement program, which people have opted into, and you're seeing the tail end of that process, really, to... make sure that we treated employees who have been with us in a really supportive way, but then clear the space so that we can move forward to drive an integrated organization going forward. So we've had lots of success in bringing the company together, lots of momentum, lots of energy inside the company as we've done that.
spk09: Okay, got it. So it's more tail end than nothing new.
spk02: Nothing new.
spk09: Okay. Thanks Bill.
spk00: The next question comes from Surrender Thin with Jefferies. Please go ahead.
spk05: Hey Surrender. Thank you for taking my question. Hi guys. I'd like to start with a question on kind of the big picture about the 10 basis points on roughly 10 to 15 percent of the $5 trillion in assets. Is there any color that you can provide, perhaps, on how you think about it in terms of AUMA versus the subscription licensing business? When I think about where the bulk of the assets sit, they're in subscription and licensing, so the greater than 80 percent. So how should we think about where those incremental revenues would be split between the two segments?
spk02: Yeah, you know, primarily, predominantly, we're focused in on the asset-based segment and driving even subs-based assets to asset-based surrender. And so one of the great examples of that would be in that subs-based, there are a very substantial number of brokerage accounts that we report on. We can understand that brokerage account very well and how it might benefit from transitioning to a managed account and then build a program with that broker-dealer, bank, partner of ours to transition assets from one program to another. I noted on the last call of how successful we've been with a pilot client in doing that, and again, the flow rate is 100% higher for that client moving assets into managed accounts than it was before we started the program, and that has sustained itself over the quarter. So now it has been live for over six months of experience for us. So it is predominantly asset-based. and moving assets from sub to asset-based pricing, you need value. You need a service that will provide value, a fiduciary value, to the advisor and to the end client, and that's why we're focused on the areas we're focused on.
spk05: That's helpful. And then as a follow-up, I think one of the things that you mentioned was if you adjust for – the merger of two clients, it sounds like that the net flows in the quarter were pretty strong. Any color you can provide there, it sounds like a subscription-based client acquired an AUM-based client, and they converted them over to the subscription model. Is that correct?
spk04: That's correct, yeah. And so, like, I don't know if I was clear enough in the prepared remarks, but, you know, we've defined reclass or reclassification from typically it goes from asset-based to subs. as a change in the relationship with a client. And so this one, again, was moving from one client to another client, which didn't quite fit that. So we wanted to be consistent with the definition and the presentation. It showed up a little bit differently, but that's basically what happened, yes.
spk05: Got it. And so what was the size of the estimate?
spk04: You know, I don't want to give specifics about individual clients, but it would have moved the flows. So when you take out conversions in both Q1 and Q2, it would have been higher in Q2 than we saw even in Q1 when you look at net new assets or net flows excluding conversions.
spk02: We had a very significant second quarter in flows in AUM&A.
spk05: Got it, yes, because the AUM number was very strong, but the AUA number was flat, so I'm assuming that's where the delta was.
spk04: That's exactly right. Yes, that's it.
spk05: Okay, thank you.
spk02: Great, good speaking with you.
spk00: Once again, if you have a question, please press star and 1 now. The next question comes from Alex Cram with UBS. Please go ahead. Hey, Alex.
spk01: Hey, hello again. Just wanted to squeeze in a couple of follow-ups. On the asset side, you always have that slide that shows the growth in impact portfolios, etc. Maybe I missed it, but can you give us the latest dollar number in terms of billions? Because I think that's really gone from almost virtually nothing to a pretty sizable number. So if you can just remind us about a couple of the actual dollar asset numbers in those new portfolios or in your proprietary products in general over the last couple of quarters or years, that would be helpful. Sorry if I missed them.
spk02: Yeah, we can do it in a follow-up, but I mean percentages have been significant in each of those programs, impact, overlay, direct indexing services. But exact dollar numbers I don't have at my fingertips.
spk04: There's a slide in the supplement. I'm not entirely sure. I think it's slide nine, Alex. Take a look at that and see if that answers your question. Otherwise, we can follow up.
spk01: Yeah, I think slide nine, if I'm correct, only has the percentages, right? Not the dollar numbers. Maybe I'm wrong. But anyways, and then just secondly, since nobody has talked about your data and analytics segment, I think you made some comments in your prepared remarks about subscription growth there. But quarter over quarter, that business was still, again, slightly down. So maybe just give us a quick update on what's working, what's not working, and the path to returning to growth in that segment again.
spk02: Yep. Thank you, Alex. I'm seeing some very encouraging signs in the data and analytics business. Our organic growth first half of the year has been low single digits, but we think we're going to be modestly better in the second half of the year. It's being driven by a couple – the growth is being driven by a couple of dynamics. Number one is the analytics business. Part of that business is restoring its growth rate. So we're beginning to turn that into a much more positive percentage growth rate. Our financial institution business continues to be strong. We continue to sign many new fintechs. That revenue is typically down the road. The firms that are successful in that FinTech portfolio of ours then drive more and more users. We get paid on those users. But our pipeline for FinTech and the contracts we've signed for FinTech, competitive engagement in each of those has been very kind of encouraging over the last quarter. International continues to return to growth. In the international, again, open banking in the UK market primarily really slowed things. Firms couldn't screen scrape or aggregate unless they were certified. Those firms are certifying, and we're beginning to restore our growth rate in international. The one that continues to be a decreasing revenue line for us, but this has been intentional, is professional services as we really de-emphasize those engagement costs for our clients.
spk01: Yep. Excellent. Thanks for the update. Great.
spk02: Thank you, Alex.
spk00: This concludes the question and answer session. I would like to turn the conference back over to Bill Krager, CEO, for any closing remarks.
spk02: Thank you so much. Thanks for joining the call this evening, and thank you for your support of InvestNet. I want to thank the InvestNet team for a very successful quarter and the work that everybody in this organization is doing to power the ecosystem for our industry. I look forward to speaking to everybody again next quarter. Thank you very much.
spk00: This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.
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