Envestnet, Inc

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.

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.

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.