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spk00: Greetings. Welcome to InvestNet third quarter 2022 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. Please note this conference is being recorded. I will now turn the conference over to Brian Shipman, head of investor relations. Thank you. You may begin.
spk06: Good evening, everyone. Thank you for joining us on today's third quarter 2022 earnings call. Before we begin, I'd like to point out that our earnings press release, supplemental presentation, and associated form 10Q 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. This information is based on our current expectations and is not a guarantee of future performance. I encourage you to review the cautionary statement on slides two and three for potential risks, uncertainties, and other factors that could cause actual results to differ from those expressed by the forward-looking statements. Further information can be found in our regular SEC filings. During this call, we will be referring to certain non-GAAP financial measures. Please refer to the appendix in our presentation for a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures. The presentation 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, InvestNet's Chief Financial Officer. Bill and Pete will provide a company update as well as an overview of the company's third quarter 2022 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 will now turn the call over to Bill. Thank you, Brian.
spk07: Good evening, everyone, and thank you for joining our third quarter earnings call. InvestNet continues to generate growth and extend our competitive position in the face of a significant global financial downturn. This is a testament to the essential nature of what we do. InvestNet is growing. We've generated net asset flows. We've grown the accounts we serve. We've grown the number of services our clients are leveraging from us, grown the number of users utilizing our DNA products, that we've competed for. Much of this has been supported by our accelerated investments. I will share important updates on our progress in a moment. But first, it is important to understand that while we navigate the market and economic cycle, there is another very powerful trend at work. This is a super cycle, as data, intelligence, and digital engagement transform our industry to connect it hyper-personalized, active advice. InvestNet is forging this. We are executing on it. To step back for a moment, InvestNet drove the last transforming cycle, cloud-based, feed-based, independent advice. When you look at InvestNet's growth over the years, it becomes so evident how essential InvestNet has become to the core of the advice industry. As we enabled the movement to feed-based, The assets on our platform grew at a 42% CAGR from 2010 to 2020, while the total advice industry grew only at 13% during the same period of time. During this cycle, we created significant value for our shareholders. Today, we are leading the future again. Given our increasingly connected ecosystem, the intelligent digital capabilities we offer, These are beginning to drive this generation super cycle. This is what makes us even more essential, more embedded, more competitively differentiated. We're continuing to digitize, streamline, and foster more productive partnerships that expand our capabilities and generate new revenue streams. And importantly, across our business, we have made meaningful progress on the path towards margin expansion. Let me spotlight some of the results from our efforts. In our wealth segment, net AUM&A flows were positive above both industry and our peer group. During the quarter, we increased the number of accounts we serve and the number of accounts per advisor increased 8% year over year. This is an intended focus of ours. And we're not surprised that clients are utilizing more and more of InvestNet services. This growth will drive accelerated gains as current market conditions normalize, something that I've referred to in the past as the coiled spring. We continue to expand the footprint of who we serve and the solutions that they use, which also generates more revenue growth. On our client roster, we've recently been engaged by a national credit union. We signed a national RIA as a planning client. We expanded our partnership on fiduciary and 401K solutions with a national wire house firm. And finally, we saw strong conversion activity during the quarter. We also experienced strong account growth in our proprietary solutions. 38% year-over-year growth for tax and impact overlay as well as direct indexing, and well over 100% year-over-year growth in our high net worth solutions. These are especially notable as these are InvestNet managed solutions, meaning we capture 100% of the economics. In our data and analytics segment, We have substantially grown the number of paid users to over 37 million today, and that's up from 25 million in 2019. As economic conditions improve, this will be another coiled spring for our business. Total number of transactions that we've tracked this year are estimated to be 48 billion, which is 2.5 times what it was in 2019. You see, the platform is getting smarter as we derive insights from this vast and growing data set. Additionally, the launch of the WealthData platform is a clear example of how we are creating value for our clients and driving incremental revenue growth. The platform allows home offices and advisors to connect, to aggregate, protect, and analyze their own data. It also generates extraordinary intelligence as we have grown the number of insights we publish to over 20 million a day. Let me explain this. Insights tell advisors about the most important needs or opportunities for their clients. Our data shows that the greatest opportunity for advisory clients lies in their existing book of business. We are unlocking this for them. Here's an example. Over the past 16 months, within the tax overlay program, advisors utilizing Insights have experienced 57% growth in assets, while advisors without Insights have only grown at 20%. So you can understand why Insight utilization is up 40% quarter over quarter. There is very strong interest in growing utilization, which drives more and more flows, which means our advisors will experience faster growth as will InvestNet. We expect the WealthData platform to generate more than $35 million in annual revenue by 2025, and the platform insights will continue to generate even greater usage of our marketplace of fiduciary solutions, which will capture additional recurring revenue from this critical offering. The last topic I will highlight related to our growth initiatives is something that we're incredibly excited about. We recently announced a partnership with FNZ, a global leader in wealth management solutions. We are partnering with them to create a fully end-to-end from prospect to client, from plan to portfolio, to execution and custody, digital environment that will automate, scale, and fully digitize our clients' engagement with InvestNet. This is another very significant step in value creation, and it enables us to pursue expanded revenue opportunities associated with custody, captured through our platform technology integrated with FNZ. In addition, FNZ will distribute the InvestNet wealth data platform to their international clients, which represents a major step for InvestNet in the international wealth market. As we grow and are defining the competitive landscape by bringing the intelligent and transformational capabilities to the industry, we've been investing, investing to spur this next cycle, investing wisely and also managing expenses and resources. Earlier this year, we completed the investment-driven hiring cycle and reached our peak in personnel in the first quarter. This enables the future-oriented organization that is driving these high-value solutions. We've seen the benefit of this talent in so many ways over the last quarters, and the marketplace is recognizing this as well. With that said, we recently announced an agreement with Tata Consultancy Services to outsource our data analytics operations in Bangalore. This partnership allows us to transition resources to TCS, giving us operational flexibility and scale while generating an estimated cost-saving, between $10 million and $13 million in 2023. And we expect savings will increase in the coming years as our data and analytics business continues to grow. We're also modernizing our operating environment for our wealth business by consolidating and cloud scaling our portfolio trading, accounting, reconciliation, and reporting capabilities. This modernization will positively impact our bottom line in late 2023, with additional benefit realized from 2024 to 2026. As we put these systems into production, we have seen a significant efficiency and productivity lift that ultimately will create cost leverage across our business. Given the steps that we are taking, we believe that by year end, InvestNet's personnel will be nearly 25% lower compared to the peak in the first quarter of 2022. We are investing in future capabilities while rebalancing the organization to be more efficient in all areas of our business. Lastly, another meaningful effort that has a long-term client benefit and cost impact for our business is the successful integration of each of our recent acquisitions to maximize the value of these new additions to the InvestNet family. Trolytics is now a key embedded component of the wealth data platform. Ready2 integration is on track while also winning exciting new mandates with these revenue management offerings. We're also happy to share that our acquisition of 401kplans.com is immediately paying dividends as we recently entered into a partnership agreement with UBS Workplace to streamline the onboarding of retirement plans. These are very targeted investments and are delivering the intended results. Pete will provide guidance around margin expansion in his comments, but I want to say this. We remain committed to achieving the 25% adjusted EBITDA results by 2025 and believe we are taking the steps, despite this market, to achieve that result. With that, let me turn to Pete so we can share results as well as what we expect for the rest of the year.
spk04: Thank you, Bill. InvestNet continues to proactively drive our strategic imperatives while responding to headwinds created by the economy and the capital markets. For the third quarter, our financial results exceeded our guidance with adjusted revenue of $307 million, adjusted EBITDA of $53.5 million, and adjusted earnings per share of 45 cents. Both segments contributed to the outperformance within the quarter. While the performance in Q3 was favorable, the near-term outlook for the wealth segment again was adversely impacted by unfavorable equity and bond markets. Importantly, though, in Q3, InvestNet continued to deliver positive net flows well above most peers. Over the last 12 months we have posted $81 billion of net flows, or an annualized organic asset growth rate of 11%. Also, the addition of over 100,000 AUMA accounts and continued increase in accounts per advisor within the quarter demonstrate the importance of our platform to our clients through challenging times. This bodes well for the longer term. Our data and analytics Business also performed well in Q3, although continues to face pressure as the economy is impacting its asset manager and fintech client base. As Bill noted, we continue to make progress as we transform this segment from a product subscription strategy to a platform model with emphasis on content for wealth management, consumers, and small businesses. Now I'd like to discuss our recently announced partnership with TCS, which provides a significant expense-saving opportunity for InvestNet, which will generate substantial progress as we work toward our margin goals. The TCS partnership allowed us to effectively transfer InvestNet employees to one of the world's largest consulting companies, which should allow us to scale this function in future years consistent with the anticipated growth of the business. In doing so, we expect to get an immediate expense savings with a full-year benefit in 2023. Overall, we are pleased to be making significant progress in this area. Turning to our outlooks for the fourth quarter and the full year 2022, we are updating our guidance as follows. For the fourth quarter, we expect adjusted revenues to be between $294 million and $296 million, adjusted EBITDA to be between $52 million and $54 million, and adjusted EPS to be 42 to 43 cents per share. For the full year, we expect adjusted revenues to be between $1,241,000,000 and $1,243,000,000, adjusted EBITDA to be between $218 and $220,000,000, and adjusted EPS to be between $1.82 and $1.84. Our guidance, as always, does not assume any changes in the capital markets from the prior quarter end. and as such is based on market levels as of September 30th. Looking ahead to 2023, as is our standard practice, we won't be giving specific guidance until our next call in February. However, taking into consideration the market levels as of September 30th, the annualization of this year's market performance would present roughly a six to eight percentage point headwind to our 2023 revenue growth rate. in addition to the approximately six to eight percentage points of market impact to our 2022 revenue growth rate. Despite these challenges to top line growth, and given market values as of September 30th, we currently expect to increase our EBITDA margin in 2023 by around 100 to 125 basis points compared to 2022. I'd also like to add some context around a few items that do not impact our reported non-GAAP financial results, but do affect free cash flow. As we have implemented our broader strategy in 2021 and 2022, we have experienced increases in certain items, such as capitalized software. We have consolidated portions of the business, and we are implementing practical cost management, given the very difficult market climate, creating a series of restructuring costs, including a write-down of our real estate footprint. We expect the growth rate of several of these items to come down significantly going forward, especially compared to the increase we saw from 2021 to 2022, and some areas we expect to come down in absolute terms. Looking at the balance sheet, we ended September with $241 million in cash and debt of $863 million, making our net leverage ratio approximately 2.8 times EBITDA. Thank you again for joining the call today and for your continued support of InvestNet. With that, I'll turn it back to Bill for his closing remarks.
spk07: Thank you, Pete. As you've heard tonight, we've reported a positive quarter despite the historic headwinds that we face. We drove $27 billion of net flows during the quarter and onboarded over 100,000 net new accounts to the platforms. We signed meaningful new clients and also made progress expanding the services we provide to our existing clients. After the quarter ended, we took important strategic steps, announcing two exciting partnerships. Our new partnership with FNZ opens up multiple significant addressable market opportunities for us to drive increased revenues associated with custody and our wealth data platforms. Our partnership with TCS allows us to significantly reduce expenses immediately. And as I stated a few moments ago, we are operating more efficiently, scaling, automating, lowering the cost to administrate our business, while we invest in the areas of growth and long-term value creation. We are executing our strategy, which creates significant value for our clients and for the industry, while it enables our business to capture the next leg of accelerated growth and margin expansion. Since day one, this company has executed. Today, we once again are leading a transforming super cycle of data intelligence, digital engagement, and personalized offerings. We are delivering more, more effectively, making ourselves even more essential to the industry and to our clients. InvestNet is a leading indicator. The people of InvestNet lean in, lead, and execute. We have positioned the InvestNet ecosystem to drive the future once again. With that, we are happy to take your questions.
spk08: Operator?
spk00: Thank you. 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 two if you would like to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question is from Devin Ryan with JMP Securities. Please proceed.
spk10: Great. Good evening, Bill, Pete, and Brian. Just have one question here. Just want to talk a little bit about the FMZ partnership and You know, the custody solution sounds interesting. So, you know, how is that going to be positioned in the market? And then how should we be thinking about some of the both short-term and long-term revenue opportunities to invest in that that you highlighted there?
spk07: Awesome, Devin. Hope you're well. Good to talk to you. See you soon. Yeah, no, this is a very exciting partnership for us. We are something that we've been incredibly deliberate in assessing over how we can extend our platform and our capabilities to include some of the services that we'll introduce through FNZ. First and foremost, important to understand, InvestNet is the most open architecture environment in the industry, period. We trade back to about 32 different trading and custody partners. So we are the industry, and we network to the industry. But, you know, in our conversations with clients, They are looking for more digital options, more efficient operating environments. And the industry needs to really advance how we work together. And InvestNet took the step, and we're driving that advancement in our mind with this partnership. This partnership is a step ahead for the industry. InvestNet and FNZ are extremely complementary capabilities. We also have very complementary geographies, right? We are accelerating FNZ's entry into the United States market, and they are bringing us into the international markets. This is truly a global deal. We also have a very complementary approach to how we approach our clients, working collectively to create success and growth and also profitability. for our clients. We're very aligned in that way. So with FNZ, InvestNet will provide the leading capabilities on the front end, everything that we've modernized and all the operating technologies that we offer the marketplace today. And with FNZ, we will deliver the most advanced digital automated opening and servicing for the full lifecycle of a client account, which includes custody. And so it's a truly kind of digital end-to-end environment that we'll be introducing to the market, Devin. It opens up some new revenue streams for InvestNet, which we're excited about and I think over time are meaningful for us. You know, as we use our technology platform to enable services like custody, you noted that there's also cash management. There's also lending, other capabilities that utilizing our technology platform will be able to enable. We'll be in market in the second half of 2023. As we approach that kind of entry or release into the market, you know, we'll start to forecast what contribution from a revenue standpoint we think this can produce for us. But I do believe, you know, given the streamlined digital nature of this and the real-time nature of the data that we'll be able to provide during that account opening and administration process, it is differentiated and has the opportunity to be very successful.
spk10: Okay, terrific. And just one follow-up on that. Is the right way to think about it that if we understand all the ways that custodians can essentially interact with customers and make money that InvestNet will have some revenue share on that with any customers that end up custodying through this new partnership platform.
spk07: That is exactly right, Devin. And I would just add to that, in addition to that, there is the global distribution of certain solutions that InvestNet will work and partner with FNZ to FNZ's international client base.
spk09: Okay, great. Thank you very much. I look forward to following.
spk08: All right. Thank you, Devin. Good to talk to you.
spk00: Our next question is from Alex Cram with UBS. Please proceed.
spk01: Yeah. Hey, good evening, everyone. First one is a quick numbers question. I was surprised to not see an update in your prepared remarks, unless I missed it, or in the deck around the personalized solutions. I think in the last few quarters you've given the AUM number and even less core the account numbers. I thought that was going to be a major KPI for you to measure success. So A, can you give us a number and B, any reason why maybe you didn't report it?
spk07: Yeah, I mentioned, Alex, thank you. I mentioned in the script, but I'll just kind of highlight some of the progress there. And then we reformatted the slide in the supplement and it's there. We wanted to simplify so that our pure gross net revenue products were bundled into a revenue line there. So happy to walk you through that. But it's page 14, Alex. So direct indexing. Year over year, assets are up 4% despite the market. So very strong asset growth. Accounts are up 37% year over year. And advisor growth, a number of advisors using the direct index product is 53% growth. So clearly a lot of progress there. And on overlay, 2% year-over-year asset growth. Again, impressive given the headwinds of the market. Accounts are up 38% year-over-year, and advisors using the overlay services is up 33% year-over-year. Sustainability, as you know, is an asset class that, has been reasonably challenged from a performance standpoint. That said, we're eking out growth, $36 billion in sustainable assets on the platform. We've got accounts up year over year by 9% despite the performance headwinds, and advisors are growing as well for that solution. So it continues to be a major focus, which I highlighted in the prepared remarks. and something that will become a more and more meaningful driver of our growth as we penetrate the asset base, which is an intended focus of ours.
spk01: Okay, great. I'll follow up on the exact numbers there later. But shifting gears to the TCS deal, I may be dating myself here a little bit, but when I think back to the IPO days, I remember that your, I guess, back office organization oversees was I think you viewed as a key differentiator and you really wanted to have control because everything needed to be right, everything needed to be timely, etc. So now that you're outsourcing that, I'm just curious what has changed and looking forward, are you at all worried that as you lose control that A, at some point the costs may balloon because you don't control it anymore? or I guess the service may go down. So maybe just touch on that. But related to that, $10 million to $13 million in savings, that's a 23 number. Is that it, or are there any opportunities to actually get more savings down the road as this potentially ramps, or is this a one-time thing and that's it?
spk07: Yeah, thank you, Alex. And a very good memory. And I would say that we continue – we have two – substantial back office operations for our business. One for data and analytics, and that's the office in Bangalore, which we've transitioned to TCS, and I'll talk about why and the thought process around that. The other one is in Trivandrum, and that supports our wealth platform. We continue to believe that we can create a substantial competitive advantage utilizing the wealth infrastructure and the wealth back office operations However, it will become more and more operationally efficient, more and more automated, I'm sorry, but we'll continue to resource out of Travandum to serve that wealth business. Why is it so competitively advantaged? At our peak, at some point this year, we were at $5.7 trillion in assets served. We're trading millions and millions of blocks, tens of millions of trade blocks each quarter. We're servicing 18 million plus accounts. We have a unique scale and unique functionality in our wealth platform. We're committed to it and we'll continue to invest in it. That said, with the Bangalore operation, which is the operation that we're partnering with TCS on, The business we've seen has transitioned pretty substantially from a screen scraping, administrative business to more of an open banking and direct connectivity and that's something that we've driven. We've driven a network of direct connections with more and more financial institutions to streamline the way data moves around the system versus the hard, old school way of screen scraping. Screen scraping required a substantial back office support and human support to fix the breaks that occurred as you did that. So as we look forward, we think there's so much more agility with TCS as it transitions from the former way, that screen-scraping administrative platform, to open banking, and really saw that as an opportunity to transition that pool of resources in an effective way to create immediate and near-term cost savings, 23 noted $10 million to $13 million, But as we go forward and we scale, as our volumes grow, which they're growing pretty substantially in the data and analytics business, there will be more and more leverage that will be created there from a cost-saving standpoint. So the starting point for that is $10 million to $13 million in savings, but we anticipate that will grow.
spk01: All right. That's all I needed. Thank you, guys.
spk08: Thank you, Alex.
spk00: Our next question is from Sarinder Thind with Jefferies. Please proceed.
spk11: Thank you. For my first question, just in terms of the update that you provided on the insights engine, very impressive numbers in terms of the users that use that product in terms of the account growth and the asset growth versus the non-users. Can you maybe provide a bit more color on the current number of users that you have for that product or maybe what the penetration rate is, how much more there is, and then given that it's been available to some extent at this point, like how much more runway is there in terms of why people, there aren't more on the platform at this point?
spk07: Yeah, thank you, Sarinder. We are early days is what I'd say from the insight engine. You know, usership of the recommendations or the insights is growing by 47% year to date. And so we're continuing to roll that out to the marketplace. But there's a very substantial product that's tied to the Insight Engine, and that's the Wealth Data Platform. And the Wealth Data Platform, really, we announced that rollout a couple of weeks ago and beginning to introduce that solution to our clients. What's the Wealth Data Platform doing? It collects the data that's on the InvestNet platform, but expands it to collect all of our clients' data to normalize it, to verify it, to reconcile it, to then publish it. And it goes through the insight engine to create these insights for the advisors to take action on across their complete held and held away book of business. And so we are in the very early days of utilizing the insights. to drive deeper penetration of our solutions that are on the InvestNet platform. It is in its purest way a demand generation tool because advisors, the greatest opportunity that they have for growth is in their current book of business. They're unaware of it. We're surfacing these things at their desktop, then connect it to the workflow to go and execute. and in the FNZ instance, all the way back through the full administration of the account. And so it is a one-of-a-kind, a truly transforming capability that is making its way to market, and I believe will create, you know, very substantial adoption over the quarters ahead. We're just getting started. And the 47% – Surinder, I just want to make sure I'm clear. The 47% – is the average account growth for the users of the Insight Engine. They're growing accounts at a 47% higher clip.
spk11: Got it. And then in terms of just when I think about flows, conversion activity, can you maybe talk about if there's kind of any change in the conversion activity pipeline or outlook at this point. Obviously, conversion activity has been very strong, but it also reflects decisions that were made earlier when the economy was more robust. Can you talk about the pipeline at this point and the conversations that you're having with advisors and so forth? How should we think about that in kind of this lower macro?
spk07: Yeah, and the market clearly is more tentative given the market environment, but we had a very strong conversion quarter, and those tend to be lumpy. We'll have more conversion activity in the fourth quarter, but the third quarter was strong. This quarter and in the last couple of weeks, we did sign a national credit union for a We signed a national RIA for our leading financial planning capabilities. We have worked with UBS to offer our fiduciary and 401K solutions to their workplace offering. You know, we're out and we're winning the mandates we want to. We're focused on winning. I think we've seen exceptional win rate this year, not only in the wealth business, but in the data business as well. The number of firms that are working with the company today is higher than it's ever been before and have had a pretty substantial win rate this year. The other thing I would note is is that we've been very focused not only on those new logos or those new opportunities, it's been very much focused on expanding services with our existing clients, and we've been very, very successful, I believe, in doing that this year despite the market. And you can see it. You can see it in the numbers and the way that we're expanding how many services an advisor is using, the total number of accounts, per advisor on the platform is up pretty considerably. The number of AUM accounts on the platform are up considerably. And the number of services those accounts represent has broadened pretty considerably. So when we said on the investment program, we're going to focus, we're going to go deeper in our existing client base, that is occurring. And you can see it, you know, the market headwinds, And, you know, the overall industry flow rates, those aren't performance-related issues. The performance-related things that we're able to focus on and drive, we are driving. And I think the results of those underlying KPIs are very encouraging.
spk11: That's a very helpful bill. I'll get back in the queue for my follow-up questions.
spk08: Thank you, Surinder.
spk00: Our next question is from Peter Heckman with DA Davison. Please proceed.
spk02: Hey, Peter. Good afternoon, everyone. Thanks for taking the questions. You presented a ton of information so far. Just one follow-up on FNZ. Does the partnership with FNZ limit your ability to market either your wealth technology or wealth solutions into some of FNZ's core markets like UK and Australia?
spk07: You know, it's a global partnership, and I'd say, Peter, we're just starting with the wealth data platform in that international market, but the area that I would be focused on next would be some of them, you know, which are less regulatory or less – you know, have the shortest window to get to market would be some of our software solutions, right? And some of our software solutions includes the very powerful FinApps we've designed for our client portal or things like our financial planning capability, which is world class, is best in class, and believe there's a global opportunity for those capabilities. Ultimately, we will work together, you know, as we... really forge and execute on this partnership to be able to think more broadly about some of the fiduciary things we do as well.
spk02: Okay. All right. That's helpful. And then I think you've completed three acquisitions to date. I suspect none of them are all that big, but could you maybe give us a annualized aggregate run rate for revenue for those three deals just so we can think about the modeling them out for the next couple quarters.
spk04: Yeah, Pete, so this is, yeah, of those three in Q3, the total was a little over $3 million. So annualize that, it's about 12.
spk07: Okay. What I'd say, Peter, I'd just add to that, is we're winning some really off the bat, you know, early in the match or early in the game here, we're winning some important mandates. So we're accelerating that. their growth across the board. In Truelytics, it's core and embedded in our wealth data platform. It is a one-of-a-kind valuation capability for financial advisors and advisory firms. The Ready2 is going deeper in the RAA market as well as with asset managers, which is something we highlighted when we acquired the company. And 401kplans.com, you know, the UBS would be an indication of how that's being received in the market.
spk08: Good. All right. That's helpful and good to hear. Appreciate it. Yep. Thank you, Peter. Hope you're well.
spk00: Our next question is from Jeff Schmidt with William Blair. Please proceed.
spk12: Hi, good afternoon.
spk00: Yeah, good to talk to you. How are you, Jeff?
spk12: Thank you. Good. Question on the insights engine. You know, it seems the AI that helps kind of determine where advisors can upsell more solutions. But I guess my question is, do they have to opt into that or I guess why wouldn't they or do you run that on the back end and sort of determine where the opportunities are?
spk07: We use it both ways. This is a very valuable service so bundling that and bringing that to their desktops has a value creation and we're going to capture revenue there as part of that service and that will be bundled into our wealth data platform that has high, high value and is a unique I think, very high potential offering that we have compared to any of the other data solutions that are in our space. But then we utilize it, and it's important to note this, we utilize it heavily in our internal sales and marketing focus because we can reach out to an advisor and not try to sell them a service like tax overlay or social or direct indexing, We can actually say your account could benefit from this service, and you have an 88% chance of closing that. Here are the marketing tools that we've customized for you. Let us know if you need help engaging the client. And that is a very powerful connection with that advisor versus what typically happens from a sales standpoint where people are trying to sell benefits and features and go through all that without the, you know, we're hitting that nail on the head to say this client of yours has this opportunity. Let us help you go close it.
spk12: Got it. Okay. That's great. And then, On the, I guess, which personalized solutions are seeing the greatest uptake, and more importantly, I guess, having the biggest impact on the fee rate? I mean, I just see that the overall average fee rate is starting to reflect upward, and just wondering what's driving that the most.
spk07: Yeah, I would say that, you know, all things being equal, these are all, you know, very positive, impactful, contributing capabilities. But the direct index solution, is the highest fee rate, and it's explicit fee rate in that it offers both gross and net revenue from 15 to 20 basis points kind of thing. But then when we bundle some of these things together in our high net worth, and I talked about it in the script, this year, 2022, we've seen 100% growth in our high net worth solutions business. And there we're bundling consulting, asset allocation overlay, execution of the portfolio in really for very high net worth individuals and helping advisors close that business. And that tends to be in the 30, 35 basis point range. So, you know, smaller target market because it's truly the high, high net worth, but we've been very successful there and we'll continue to grow there. from a more mass market or affluent market, that direct index solution will probably be a primary driver.
spk08: Got it. Thank you for the answers. Thank you.
spk00: Our next question is from Patrick O'Shaughnessy with Raymond James. Please proceed.
spk05: Hey, good evening. So your insight engine is delivering about 20 million insights per day That's a little bit more than one per end account. How do you deliver insights in a way that it doesn't overwhelm the advisor and they can actually determine which ones to work on with their clients?
spk07: Yeah. How are you, Patrick? I hope you're doing well. I'm excited to share this with investors and with analysts because we have built a – platform and the platform that we've built extends beyond the advice that an advisor is offering a client to how the advisor can best optimize and grow the valuation of their business and so what we do is we create the insights and then they'll be published to that advisor in that cat in a ranking of accounts at risk and accounts with opportunity, and then the financial impact to the advisor based on executing on that transaction or executing on that service or protecting that revenue going forward. And that's really all powered by that wealth data platform. So if we have the data, we can understand the implication of an insight for that advisor. We automate it and it's published in a way that is highly utilized or highly, the ability to highly utilize these insights so they are not like a grocery list of things. They're categorized and then they're categorized and then they're kind of stack ranked by impact. And, you know, that particular capability is the one that's bundled with the wealth data platform that is just making it to market. So the utilization of our insights today tends to be a less structured insight listing for advisors, and yet we're driving the growth and the penetration that we're seeing. In the environment that we're rolling out and introducing to the market here in the fourth quarter, it becomes a very powerful platform of capabilities that the advisor's business begins to optimize on. And that's a meaningful, meaningful step for us.
spk05: Got it. That's helpful. Thank you. And then your fourth quarter outlook, it implies that subscription revenue will be down a little bit quarter over quarter. Can you speak to what's going on there?
spk04: Yeah, I think the big thing, we had some clients who have minimums in our data and analytics business. that had usership go above their minimums. And when we recognized that revenue, they reset in the fourth quarter. So I think that was the big thing driving that difference in Q4. Thank you.
spk08: Thank you, Patrick. Hope you well.
spk00: Our next question is from Ryan Bailey with Goldman Sachs. Please proceed.
spk03: Good afternoon, everyone.
spk00: Hey, Ryan. How are you?
spk03: Good, thanks. I'm sort of coming back to the insights engine. Once again, I was wondering if you could help us think about the demographics of the advisors who are using insights of a larger, smaller, more or less sophisticated further along in their careers or sort of newer to their careers. Just any sense on like who's actually using would be very helpful.
spk07: Yeah, Ryan, early adopters have been at larger institutions. We've seen a lot of adoption in the bank broker-dealer space as the banks are looking to transition accounts and add higher services. So probably not the exact demographic that you would anticipate. I do believe that this will be highly adopted by that sector. newer, more digital-inclined advisor. And, you know, as we drive our cloud service, the WealthData platform, into the market, I would anticipate that we'd see quite a bit of adoption there. And the pipeline for that offering, which, again, we just announced a few weeks ago, is significant. So we're enthusiastic about it. But primarily, the early adopters have been in the bank broker-dealer space.
spk03: Okay. And it might be a little too early to sort of think about this just yet, but maybe not. Are you seeing any difference in retention for advisors or accounts that are using both insights and some of the asset-based solutions? Like, is this a way that, you know, clients are seeing real value and they're deciding to just sort of stay with the platform? Any noticeable difference in behavior because of these solutions?
spk07: Yeah, the redemption rate overall is, has been very resilient. And you can see that in our numbers. And if you scrub down underneath that, you see that the value-added services have been very, very resilient. And it's because there's a proposition here that is very personalized. And you'll hear the industry, and I think it's important to note, the industry is driving towards these very personalized offerings to individuals. They are stickier. because they're addressing Ryan and not the masses, right? And that matters. And so when you scrub under our redemption data, you see that these tend to be more resilient accounts, and I think they're long-term accounts. There'll be also accounts that evolve with that individual versus static to the risk profile that you created five years ago, right? This evolves with with the client. And the return mechanism there is very personalized, too. By that, I mean your performance reporting and everything kind of is that cycle, that life cycle of an investment. I bought this. Here's what it's doing for me. How is it doing for me? And it continues to evolve. So there's real power in that. InvestNet is incredibly well positioned to deliver that at scale, so we call it personalization at scale, and something that we've invested quite a bit in, and part of our investment program was to create scale there, and I think we've been successful at it. And overall, I'd say, you know, Devin, you know, despite the market, and it's been, I know for everybody on the call tonight, it's been a very difficult headwind. You know, we're forging ahead. We stated we were going to make investments. We've made the investments. And we're driving growth in those areas in a very difficult environment, but we're also advancing our position with partnerships with folks like FNZ and TCS and our ecosystem of partners. So I think it really speaks to the focus, the discipline we put around that investment strategy, execute it, and now we're rebalancing the organization and turning towards margin expansion, which we're committing to for 2025. So I hope that's helpful, Ryan.
spk08: Thank you.
spk09: Thank you.
spk00: We have reached the end of our question and answer session. I would like to turn the conference back over to Bill Krager for closing comments.
spk07: Thank you so much for joining us this evening. Always and very much appreciate support of the analyst community and all of our investors. As I just said to Ryan a moment ago, InvestNet, we're forging ahead and we are executing. I'm thankful for, I'm very thankful for the people of InvestNet and all the partners in our ecosystem for the difference that we are making. I look forward to seeing you all very shortly and speaking again to you next quarter. Thank you and have a good evening.
spk00: Thank you. This does conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.
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