Envestnet, Inc

That is considerable outperformance, which we've been delivering quarter after quarter. This is reflected in more activity utilizing more services by more advisors. In the first quarter, the number of accounts on our platform grew 4% year-over-year to 18.5 million. And AUM&A accounts per advisor grew 6% year-over-year. Our personalized investment solutions like direct indexing and overlay services continues to grow new advisors and new accounts. We've been investing to modernize the platform to deliver for our clients and better integrate their workflows, increasing our operating leverage through automation of processes and monetizing higher margin solutions. On the revenue side, yes, we'll be challenged by choppy markets, but we are gaining share, and that will drive faster organic growth rate in more normalized conditions. We're going deeper with more clients, cross-selling more solutions in our renewals, and winning new logos and new conversions. As well, our pipelines and bookings are up significantly since last year. Let me share a few highlights of the impact that we're seeing this year. Our high net worth solutions. These are comprised of our investment specialists who construct custom portfolios for advisors and their clients. These solutions leverage all the investment products on our platform to highlight their growth Last year, we had $4.5 billion in gross flows from a universe of approximately 12,000 advisors who had access to our high net worth program. In the first quarter of this year, we drove $1.3 billion of flows and project $6 billion in flows in 2023 with a footprint of now approximately 30,000 advisors. We're increasing firm and advisor access and increasing the penetration of existing high net worth advisors by upselling tax overlay, and directs in indexing. We expect flows to continue to grow, and these solutions carry an average fee rate of 20 to 30 basis points. In the RIA channel, where we have over 2,000 firms using our software, we're leveraging our integrated platform to expand the adoption of investment management solutions. We currently have $6 billion of assets, and we forecast $10 billion by the end of this year. As we sell our managed account product, we'll be able to cross-sell additional investment solutions, increasing our revenue opportunity by 10 to 15 basis points. We're also beginning to drive adoption of other solutions, such as alternatives, insurance, and credit. The retirement space is another important growth segment for InvestNet. Fundamentally, we're making it easier for our core segment of advisors, beyond just retirement specialists, to provide 401 solutions to their end business-owning clients. We're capturing the regulatory tailwind created by the SECURE Act 2.0 and delivering a simpler integrated technology and data platform. We're winning new mandates. We're winning new logos, including agreements with a global warehouse, and recently announced a partnership with Empower, one of the largest retirement plan service providers in the United States. The advisor footprint, including newly signed firms, is at 30,000. providing a lift in subscription revenue and expands the opportunity for investment fiduciary solutions with fees that range from three to nine basis points. Lastly, in our wealth data platform, we've launched an integrated holistic data environment delivered through digital experiences that make our analytics even more actionable. Our client and prospect pipeline has doubled since September because we are able to cross-sell very unique capabilities like our insights engine. The feedback from our clients last week at our Elevate Summit was outstanding, as firms want to get insights into their advisors' hands as soon as possible. Here's why. Today, we are publishing 24 million of these insights a day across 96 different use cases. Networked to our broad range of solutions, insights can drive, on average, a 31% organic deeper wallet share revenue gain in an advisor's practice while they deliver better client outcomes and more use of InvestNet solutions. Today, we serve 106,000 financial advisors on our platform. Today, we know we can grow the average advisor by 31%. And today, more of our clients are asking us to connect them to the Insight Engine because we can help them grow and in turn, InvestNet grows. In all of these important segments, the tangible proof of our investments, integrating our data and our technology is giving us the right to win and go deeper with more clients. On the expense side, we've been modernizing our platform to drive greater operating leverage while managing controllable costs in the near term. Our investment cycle peaked in 2022. For 2023, our forecast for adjusted operating expenses is down approximately 4% year-over-year despite the inflationary environment. We are continuing to gain efficiency from modernization. We processed another record number of trades last quarter, 58 million, with lower headcount and fewer errors as we continue to automate service requests and reduce the number of support tickets that we serve. We continue to reduce our real estate footprint and optimize our office space. Occupancy costs are down 35% since 2021. We are doing more for more clients than ever before, but we are doing it with more and more streamlined operating infrastructure and fewer personnel. Our data business has begun to leverage an outsourced environment. Our wealth business is beginning to leverage our modernization efforts. The benefits of each of these are just beginning to be experienced in our service model and in our financial results. Bottom line is this. We're driving multiple new higher margin revenue streams, leveraging investments for operating efficiency while carefully managing expenses. All of this will propel us towards our 25% adjusted EBITDA margin target by 2025. We'll keep innovating and adding to our ecosystem to drive more and more engagement on the platform. creating greater value for our clients and creating greater distance from our competitors. Let me take a moment to share some very tangible examples. We invested in our next generation proposal engine, which is a critical piece of technology and at the center of driving more utilization of the platform. It is rolled out, and by the end of the year, it will be live in 5,000 firms covering 77,000 financial advisors. This is so important. Because this proposal engine not only has best-in-class user experience, it also allows for personalization of portfolios at scale by fully integrating the entirety of the investment ecosystem. That's data plus planning, network to all of our solutions, investments, insurance, credit, the entirety of what we offer being available to all of our advisors. That speeds adoption, reduces administrative friction, and is just one of the ways We are enabling service and operating scale for our company. Our partnership with FNZ is creating tremendous interest in the marketplace and was a highlight in standing room only discussion at the summit. Together, we're solving real challenges for the industry, and the work we're doing at FNZ is on schedule. We are hitting all the milestones on our roadmap to build out an end-to-end investment plus FNZ technology options. We expect to be in the market by the end of this year and see a gaining traction starting in 2024. To put a little perspective or color around it, in the REA world, all economics related to custody average around 15 basis points, and in the broker-dealer market, around nine basis points. With FNZ, we'll begin to participate in those economics for the first time, and the opportunity that we have is significant. exemplified by the $1 trillion-plus of annual growth flows that run through our platform every year. We are making considerable progress. Our clients are leaning in with us, and we're going deeper. I am super energized by the progress we've made and the validation the market is reflecting to us. It's important to understand the impact InvestNet is making for our clients as we deliver our results. I'll turn the call now over to Pete, who will provide details on this quarter's performance and our outlook for the rest of the year.

Thank you, Bill. Our first quarter results continue to reflect the impact of our strategy and the anticipated progression from 2022 into 2023. During the first quarter, the economic environment brought further uncertainty with regard to continued market volatility, inflation, liquidity of regional banks, and so on. Our first quarter further demonstrates the attractiveness of our business model and the impact of the actions we've taken amidst this current economic environment. As we think about the first quarter and the rest of 2023, I want to remind you of the context of our financial performance. In 2021, we announced a long-range plan to better organize and streamline the company, working more deeply with our clients and in more ways, ultimately paving the way for longer-term sustainable revenue growth and higher levels of profitability. We began these investments in 2021. and had them fully included in our operating expense base in 2022. Now 2023 becomes a year focused on execution and delivery with the anticipated results of margin expansion. We saw the beginning of this in Q4 2022 and continuing sequentially into the first quarter of 2023. For the first quarter, although the challenging environment continued to have an impact on our clients, Adjusted revenue was approximately $299 million, and adjusted EBITDA was $55.4 million, and adjusted EPS was 46 cents in Q1. Our guidance for Q2 and the rest of 2023 is laid out in the earnings release and in the supplemental presentation. Overall, the economic environment in Q1 produced a difficult time for clients and prospective clients impacting both segments of our business with extended decision-making processes and ultimately prolonged sales cycles in some cases. This dynamic affected both segments and asset-based subscription and professional services revenue in Q1. While industry-wide flows remain under pressure, the wealth segment continues to experience positive net flows in our asset-based products. Subscription and professional services revenue was relatively more impacted by the economy. Our outlook for the rest of the year takes further onboarding delays throughout the rest of the year into consideration, to some extent offsetting higher revenue from Q1 capital markets increases. The data and analytics segment had a number of potential and existing clients affected by the regional banking crisis. We saw a number of smaller tech clients put a hold on data spending due to liquidity challenges. However, we remain encouraged by the level of interest and the progress we're making in building the overall pipeline. For the second quarter, we expect adjusted revenue to be between 312 and $315 million, adjusted EBITDA to be between 55 and $57 million, and adjusted EPS to be 45 to 46 cents. For the full year, we are raising our revenue guidance to be between 1.26 and $1.27 billion, adjusted EBITDA to a range of 253 and $260 million, and EPS of $2.11 and $2.19. Our guidance, as always, does not assume any changes in the capital markets from prior quarter end and is based on market levels as of March 31st. Also, Q2 carries with it a seasonal increase in professional services revenue and cost of revenue related to the Elevate Summit. Turning to the balance sheet, we ended March with $53 million in cash and debt of $938 million, making our net leverage ratio just below four times EBITDA. Seasonally, the first quarter is always the highest use of cash, as we pay the majority of our incentive compensation in Q1, as well as the most significant vesting dates for employee equity compensation, giving rise to high employment taxes due. Additionally, As we've managed through the impact to our asset-based revenue from declining capital markets in 2022, Q4 of last year and Q1 of this year also carried with it elevated severance expense, which we expect to decline in the last three quarters of the year. We expect our high point for the leverage ratio to be in the first half of the year, dropping below 3.5 times by the end of the year. Thank you for your support of InvestNet. And before we open it up for Q&A, I'll turn it back to Bill for his final remarks.

Thank you, Pete. InvestNet is succeeding in a challenging market by delivering what we've committed to. Our business is executing on the strategy, and we have a leading competitive position in a growing marketplace. We're delivering significantly for all stakeholders. It is through our deep understanding of the marketplace, our drive to serve our clients today and into the future through the dedication and hard work of our teams. We're managing expenses and leveraging our investments and scale to drive organic growth and margin expansion. We are building on the progress that we've invested in, driving margin expansion throughout 2023 and reaffirming our goal of 25% adjusted EBITDA margins in 2025. We're doing what we said we would do. We are modernizing the platform and integrating it for our clients. We're increasing our operating leverage, becoming more efficient. We're also going deeper with clients and growing higher margin solutions. I want to thank our clients for the trust they put in us. They recognize the value we provide for them today and into the future. I also want to add a very special note of immense gratitude to retiring director Ross Chapin. He's been a tremendous steward of the business, been an incredible support to InvestNet during the highs of this incredible journey, as well as an essential pillar in the company's hardest days following the death of Judd Bergman. At every turn, Ross has been a driver and a tremendous steward on behalf of the company and our shareholders. Finally, to the InvestNet team, every day you execute, building, innovating, enhancing the advice that drives the success of our clients and millions and millions of end consumers, and you are driving the success of our business. As one client of ours said to me last week at the conference, what you are doing is extraordinary.